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Abstract
Research on payments for environmental services (PES) largely focuses on
two contract types – cost-share and annual stewardship payments. But other
types of transactions, such as tax credits, green insurance, and price
premiums tied to environmental stewardship certification, can also promote
conservation. Using experimental conservation procurement auctions we
evaluate farmers’ willingness to adopt agricultural best management
practices (BMPs) that reduce phosphorus runoff from farm land in the Maumee
watershed to help abate damaging algal blooms in western Lake Erie. We
determine how bids change depending on the type of transaction offered
(e.g. payment, payment with green BMP insurance, tax credit, price premium
tied to stewardship certification) to identify cost-effective incentive
mechanisms that reduce the most phosphorus runoff per dollar of payment.
Two kinds of transactions were found to be less cost-effective: a price
premium for product certification and PES with green insurance to protect
against yield loss from BMP adoption. The certification price premium
cannot spatially target conservation practices to vulnerable locations, so
average impact per dollar of payment (and hence cost-effectiveness) is
reduced. Green insurance is perceived to have high transaction costs so it
elicits demand for higher payments, reducing its cost-effectiveness.