Transaction Costs in Payment of Environmental Service Contracts

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dc.contributor.author Peterson, Jeffery M.
dc.contributor.author Smith, Craig M.
dc.contributor.author Leatherman, John C.
dc.contributor.author Hendricks, Nathan P.
dc.contributor.author Fox, John A.
dc.date.accessioned 2018-10-12T20:12:40Z
dc.date.available 2018-10-12T20:12:40Z
dc.date.issued 2014-09
dc.identifier.uri http://hdl.handle.net/2097/39210
dc.description Citation: Jeffrey M. Peterson, Craig M. Smith, John C. Leatherman, Nathan P. Hendricks, John A. Fox; Transaction Costs in Payment for Environmental Service Contracts, American Journal of Agricultural Economics, Volume 97, Issue 1, 1 January 2015, Pages 219–238, https://doi.org/10.1093/ajae/aau071
dc.description.abstract Payment for environmental service contracts commonly require actions beyond adoption of a practice, such as undergoing specified enrollment procedures, granting consent to being monitored, and paying penalties for violations. These provisions are a bundle of attributes a landholder must accept with contract enrollment, leading to transaction costs in the contracting process. This article develops a principal–agent framework to study the links between these transaction costs and the well-known information asymmetries between the landholders and the government agency offering contracts. Using stated choice data collected from a sample of farmers, we estimate a mixed logit model to quantify the contribution of different contract attributes on contract willingness-to-accept (WTA). More stringent provisions in contracts were found to raise individual WTA by widely differing amounts across farmers, but the average effects imply that overall contract supply is sensitive to stringency. From a series of microsimulations based on the estimated model, we find that transaction costs create a significant drain on the cost-effectiveness of contracting from the agency’s point of view, similar in magnitude to the inefficiency created by hidden information. Although stringent contractual terms raise program expenditures, they may be justified if they raise compliance rates enough to offset the added cost. We also simulate an implicit frontier to trace out the change in compliance needed to justify a given increase in stringency. For environmental benefits in the range of previous estimates, this analysis suggests that stringent terms would need to substantially raise compliance rates to be cost effective.
dc.relation.uri https://doi.org/10.1093/ajae/aau071
dc.rights This is a pre-copyedited, author-produced version of an article accepted for publication in American Journal of Agricultural Economics following peer review. The version of record Jeffrey M. Peterson, Craig M. Smith, John C. Leatherman, Nathan P. Hendricks, John A. Fox; Transaction Costs in Payment for Environmental Service Contracts, American Journal of Agricultural Economics, Volume 97, Issue 1, 1 January 2015, Pages 219–238, https://doi.org/10.1093/ajae/aau071 is available online at: https://doi.org/10.1093/ajae/aau071
dc.rights.uri http://rightsstatements.org/vocab/InC/1.0/
dc.rights.uri https://academic.oup.com/journals/pages/access_purchase/rights_and_permissions/self_archiving_policy_f
dc.subject Q52 - Pollution Control Adoption Costs; Distributional Effects; Employment Effects
dc.subject Q53 - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
dc.subject Q58 - Government Policy
dc.title Transaction Costs in Payment of Environmental Service Contracts
dc.type Text
dc.date.published 2014
dc.citation.doi 10.1093/ajae/aau071
dc.citation.issn 1467-8276
dc.citation.issue 1
dc.citation.jtitle American Journal of Agricultural Economics
dc.citation.volume 97
dc.citation Jeffrey M. Peterson, Craig M. Smith, John C. Leatherman, Nathan P. Hendricks, John A. Fox; Transaction Costs in Payment for Environmental Service Contracts, American Journal of Agricultural Economics, Volume 97, Issue 1, 1 January 2015, Pages 219–238, https://doi.org/10.1093/ajae/aau071
dc.description.embargo 2016-09
dc.description.version Article: Accepted Manuscript (AM)


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This is a pre-copyedited, author-produced version of an article accepted for publication in American Journal of Agricultural Economics following peer review. The version of record Jeffrey M. Peterson, Craig M. Smith, John C. Leatherman, Nathan P. Hendricks, John A. Fox; Transaction Costs in Payment for Environmental Service Contracts, American Journal of Agricultural Economics, Volume 97, Issue 1, 1 January 2015, Pages 219–238, https://doi.org/10.1093/ajae/aau071 is available online at: https://doi.org/10.1093/ajae/aau071 Except where otherwise noted, the use of this item is bound by the following: This is a pre-copyedited, author-produced version of an article accepted for publication in American Journal of Agricultural Economics following peer review. The version of record Jeffrey M. Peterson, Craig M. Smith, John C. Leatherman, Nathan P. Hendricks, John A. Fox; Transaction Costs in Payment for Environmental Service Contracts, American Journal of Agricultural Economics, Volume 97, Issue 1, 1 January 2015, Pages 219–238, https://doi.org/10.1093/ajae/aau071 is available online at: https://doi.org/10.1093/ajae/aau071

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