The Conservation Benefit-Cost Trade-off in the Conservation Reserve Program

This study examines the trade-off between the offered rental rate and on-farm and off-farm benefits made by North Carolina farmers during the 15 sign-up of the US Conservation Reserve Program. This program allows farmers to offer a ten year contract for an annual rental rate from the government to remove land from production and put it to a conservation use. Bid acceptance depends on the potential environmental benefits to be gained and the public cost as represented in a scoring mechanism called the Environmental Benefits Index. Using individual bid data and some county-level proxies for the opportunity cost of placing land in the program, the offered rental rate was regressed on each component of the Environmental Benefits Index (some representing on-farm and some, off-farm environmental benefits) and the opportunity cost proxies. The results show that North Carolina farmers are willing to offer a lower bid if they expect future productivity gains from erosion control (on-farm benefits) but must be compensated at a higher rate to provide offfarm benefits or if their opportunity cost of program participation is higher. a Associate Professors, Department of Agricultural and Resource Economics, North Carolina State University, Raleigh, NC 27695-8109 USA. Senior authorship is shared. We wish to thank Tim Jones in the Raleigh FSA office for supplying the data and Jong Hwa Lee for entering and summarizing the data. All remaining errors are our fault.