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A dynamic analysis of cost‐share agri‐environmental programs

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  • James Vercammen

Abstract

The purpose of this paper is to theoretically examine the efficiency of a cost‐share agri‐environmental program through a farm life cycle lens. Faced with a growing environmental impact from agricultural production, the farmer must decide when and how aggressively to invest in environmental capital. The steady state of the optimal control problem reveals the trade‐off between allocating farm profits to consumption versus environmental improvements. A payment from a cost‐share program reduces the time to investment in environmental capital, and also permanently increases the farmer's level of investment. A lack of targeting results in inframarginal farmers being paid more than the minimum amount that is required to induce investment. The portion of both the marginal payment and the average payment that induces new investment declines as the government's share of the payment increases, and this decline decreases overall program efficiency. Despite this inefficiency, a larger payment from a cost‐share program is shown to decrease the farm's environmental impact in both the short and long run. Le but de cet article est d'examiner théoriquement l'efficacité d'un programme agroenvironnemental à coûts partagés dans une perspective du cycle de vie d'une ferme. Face à l'impact croissant de la production agricole sur l'environnement, l'agriculteur doit décider quand, et à quel niveau, investir dans le capital environnemental. L'état d'équilibre du problème de contrôle optimal révèle le compromis entre l'affectation des bénéfices de l'exploitation à la consommation et l'amélioration de l'environnement. Un paiement provenant d'un programme à coûts partagés réduit le temps nécessaire à l'investissement dans le capital environnemental et augmente de façon permanente le niveau d'investissement de l'agriculteur. Un manque de ciblage a pour résultat que les agriculteurs inframarginaux reçoivent une rémunération supérieure au montant minimum requis pour générer des investissements. La part du paiement marginal et du paiement moyen qui induit de nouveaux investissements diminue au fur et à mesure que la part du gouvernement dans le paiement augmente, ce qui diminue l'efficacité globale du programme. Malgré cette inefficacité, il a été démontré qu'un paiement plus important provenant d'un programme à frais partagés diminuait l'impact environnemental de la ferme à court et à long terme.

Suggested Citation

  • James Vercammen, 2019. "A dynamic analysis of cost‐share agri‐environmental programs," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 67(1), pages 15-30, March.
    • Handle: RePEc:bla:canjag:v:67:y:2019:i:1:p:15-30
    DOI: 10.1111/cjag.12193
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