2019/01/28 by James Vercammen
Economics, Econometrics and Finance · Environmental Science · #Climate Change Policy and Economics #Economic and Environmental Valuation #Sustainable Development and Environmental Policy
paper · doi:10.1111/cjag.12193
crossref issued 2019/01/28 · crossref published 2019/01/28 · crossref published-online 2019/01/28 · openalex publication_date 2019/01/28 · crossref created 2019/01/29 · crossref published-print 2019/03/01 · crossref deposited 2023/09/14 · openalex created_date 2025/10/10 · crossref indexed 2026/07/29 · openalex updated_date 2026/07/29
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.