Agricultural policies and public goods: coalition incentives and minimum participation rules

The potential solution is a shift from designing individual measures to assume a collective approach so to calibrate the scale of efforts with the scale of the process.

A theoretical scheme that addresses this problem, focusing on the spatial fragmentation of conservation efforts, is the agglomeration bonus. The agglomeration bonus is a two-part incentive scheme where a bonus, in addition to a standard payment, is granted to parcels enrolled in agri-environmental schemes if they are adjacent to each other (Parkhurst et al. 2002). The literature on  has used lab experiment analysis (e.g. Banerjee et al. 2014) or mathematical models (e.g. Wätzold and Drechsler 2014). Focusing on the mathematical models, full cooperation is usually assumed and the goal of the analyses is the effectiveness of different types of payments.

In this article, we assess the conditions in which linking incentives to collective conditionality constraints better reaches the social preferences on public good (PG) provision by agriculture.  Using a coalition formation framework, we endogenize the size of the coalition and its PG contribution, to investigate how they are affected by different policy schemes. We analyse a setting in which a PG produced by farmers provides benefits to both the farmers and a regulator who represents societal preferences.

We compare the following policy schemes: 1) a homogenous payment that targets the whole population of farmers, 2) a coalition bonus, that incentivizes only the contributions by the coalition members, and 3) a coalition bonus associated to a Minimum Participation Rule (MPR) on the size of the coalition. We interpret the coalition bonus as a proxy for an agglomeration bonus scheme, from which we remove the spatial dimension.

Similar to Ansink and Bouma (2013), we apply concepts widely used in the International Environmental Agreement literature (Carraro et al. 2009), so that unlike most of the analyses on rural areas that either assume full cooperation or non-cooperative behaviour, we determine whether and to what extent partial cooperation can endogenously emerge and which policy elements can be used to foster it.

This topic is increasingly relevant for the design of agri-environmental policies. The European Union (EU) envisions coordination among farms with respect to both the compliance of the “greening” constraints associated with direct payments[1] and to agri-environment-climate payments[2]. A collective approach is often implemented by applying collective conditionality constraints such as Minimum Participation Rules (MPR) either on contracted land or on a minimum number of agents involved, above which a project is eligible for grants. For instance, in both France and Oregon additional premiums are provided to individual farms when a minimum share of land within a certain delimited area is enrolled in conservation measures (USDA 1998; Dupraz et al. 2009). In Italy, the Rural Development Plans, implementing the second pillar of the Common Agricultural Policy (CAP), of Emilia-Romagna (2007-2013 plan) and Veneto (2000-2006 plan) introduce MPR on the number of farms participating in eligible projects related respectively to reservoir construction and integrated pest management.

The analysis shows how the policy schemes affect the size of the coalition and the resulting total PG provision by the farmers, elements that are ultimately used to assess the most effective instrument to incentivize the PG provision.

The coalition size is not affected by a subsidy when the incentives do not discriminate between members and non-members of the coalition. However, a homogenous payment increases the production of the PG. On the other hand, a coalition bonus (that discriminates between members and non-members of a coalition) does increase the size of the stable coalition, and the total PG provision is quadratically related to the payment level. By comparing these results, we find that is likely that a collective approach is more effective than having a traditional homogenous payment when the population of farmers affected by the PG provision is relatively small, and the PG benefits for such a population are relatively low.

Finally, the analysis of the MPR yields both positive and normative results. On one hand, the level of MPR that results in a stable coalition has a lower and an upper bound that depends on the payment level, on the farmers’ benefit derived from the PG contribution, and on the coalition bonus. Thus, the same MPR might have different outcomes depending on the local conditions in which it is implemented, which is relevant due to the regional design of rural policies and the high variability of conditions even within regions. On the other hand, the association of an MPR to the coalition bonus (the way in which a collective approach is implemented in most of the cases) increases the range of parameters (relatively lower g and n levels) for which a discriminatory payment is more effective.

The results confirm that embedding collective conditionality constraints into rural policies can help the coordination of farmers. In addition, the endogenization of the coalition makes it possible to account for some of the specific agricultural system variables that matter for the uptake of policies with collective conditionality constraints.

Despite the limitations, some relevant results and policy recommendations arise from this study. The use of collective bonuses should not be regarded a-priori as the best instrument, but rather carefully considered together with the other options available, including homogenous payments and non-action. Beyond the parameter thresholds that we analytically derived, the findings of this article suggest that the effectiveness of collective policies depend on the local conditions in which these policies are implemented.
 

References

• Ansink E, Bouma J (2013) Effective support for community resource management. Forest Policy and Economics 37:94–103
• Banerjee S, De Vries FP, Hanley N, Van Soest DP (2014) The impact of information provision on agglomeration bonus performance: An experimental study on local networks. American Journal of Agricultural Economics 96:1009–1029
• Carraro C, Marchiori C, Oreffice S (2009) Endogenous Minimum Participation in International Environmental Treaties. Environ Resource Econ 42:411–425. doi: 10.1007/s10640-009-9264-x
• Dupraz P, Latouche K, Turpin N (2009) Threshold effect and co-ordination of agri-environmental efforts. Journal of environmental planning and management 52:613–630
• Epanchin-Niell RS, Wilen JE Prof (2015) Individual and cooperative management of invasive species in human-mediated landscapes. American Journal of Agricultural Economics 97:180–198. doi: 10.1093/ajae/aau058
• Parkhurst GM, Shogren JF, Bastian C, et al (2002) Agglomeration bonus: an incentive mechanism to reunite fragmented habitat for biodiversity conservation. Ecological Economics 41:305–328. doi: 10.1016/S0921-8009(02)00036-8
• USDA (1998) Conservation Reserve Program–Oregon State Enhancement Program. Washington DC: US Department of Agriculture Farm Service Agency.
• Wätzold F, Drechsler M (2014) Agglomeration payment, agglomeration bonus or homogeneous payment? Resource and Energy Economics 37:85–101. doi: 10.1016/j.reseneeco.2013.11.011
• Zavalloni, M., Raggi, M. & Viaggi, D. Environ Resource Econ (2018). https://doi.org/10.1007/s10640-018-0237-9

Matteo Zavalloni is Junior Assistant Professor (fixed terms) in Agricultural Economics and Rural Appraisal at the University of Bologna. His research interests are: agri-environmental policies, cooperation in resource management and mathematical programming models.

 

 

 

Davide Viaggi is Associate Professor in Agricultural Economics and Rural Appraisal at the University of Bologna. His research interests are: economics of agri-environmental schemes, agricultural policy evaluation, cost-benefit analysis of alternative technology options and innovation, economics of water use in agriculture, environmental evaluation, farm management.