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How cost-effective are land retirement auctions? Estimating the difference between payments and willingness to accept in the Conservation Reserve Program
- Kirwan, B., Lubowski, R.N., Roberts, M.J.
- American journal of agricultural economics 2005 v.87 no.5 pp. 1239
- agricultural land, Conservation Reserve Program, land retirement, cost effectiveness, environmental impact, agricultural subsidies, soil erosion, opportunity costs, soil conservation, conservation tillage
- This study measures the cost-effectiveness of the bidding mechanism of the Conservation Reserve Program in the USA. Landowners with especially high environmental benefits index (EBI) scores and especially low opportunity costs for their land can submit rent bids above their reservation rents and still have their lands accepted into the programme, resulting in windfall gains to these landowners. The study estimates the size of these premiums from bidding behaviour observed in data on all administrative bids from regular CRP sign-ups since 1997. Estimated premiums have generally increased over time and constitute 10-40% of the programme's rental pay-outs under sign-ups 20 and 26, the two most recent sign-ups for which data are available. The findings suggest that potential cost savings could be substantial if a bidding scheme that achieves a more efficient balance between wealth transfer and environmental gain is implemented.