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Pay for Performance: Optimizing public investments in agricultural best management practices in the Chesapeake Bay Watershed

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  • Talberth, John
  • Selman, Mindy
  • Walker, Sara
  • Gray, Erin
Abstract
Agricultural best management practices (BMPs) such as streamside buffer zones and cover crops are increasingly being used to reduce nutrient pollution into water bodies. Eutrophication from fertilizer runoff is the key driver behind growth of hypoxic “dead zones” where fish production comes to a standstill. Governments heavily subsidize BMPs, but do not generally allocate funds to maximize their environmental benefits. But with ever-increasing fiscal constraints, policy makers are searching for ways to enhance efficiency of BMP programs. Pay for performance presents an alternative platform based on nutrient reduction achieved. This paper compares a conventional subsidy approach with pay for performance for BMPs designed to reduce nutrient pollution into the Chesapeake Bay. We model four paired scenarios using a constrained optimization model. In the first pairing we held the level of nutrient reduction constant and compared cost effectiveness of the two subsidy allocation methods. In the second pairing we held the level of program investment constant and compared nutrient reduction outcomes. In both pairings, pay for performance was far superior — delivering identical nutrient reduction outcomes at less than half the cost in the first and delivering two to three times the amount of nutrient reduction for the same budget allocation in the second.

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  • Talberth, John & Selman, Mindy & Walker, Sara & Gray, Erin, 2015. "Pay for Performance: Optimizing public investments in agricultural best management practices in the Chesapeake Bay Watershed," Ecological Economics, Elsevier, vol. 118(C), pages 252-261.
    • Handle: RePEc:eee:ecolec:v:118:y:2015:i:c:p:252-261
    DOI: 10.1016/j.ecolecon.2015.07.033
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    1. Femeena, P.V. & Costello, C. & Brennan, R.A., 2023. "Spatial optimization of nutrient recovery from dairy farms to support economically viable load reductions in the Chesapeake Bay Watershed," Agricultural Systems, Elsevier, vol. 207(C).
    2. Fontecha, John E. & Nikolaev, Alexander & Walteros, Jose L. & Zhu, Zhenduo, 2022. "Scientists wanted? A literature review on incentive programs that promote pro-environmental consumer behavior: Energy, waste, and water," Socio-Economic Planning Sciences, Elsevier, vol. 82(PA).
    3. Ranjan, Ram, 2019. "A forestry-based PES mechanism for enhancing the sustainability of Chilika Lake through reduced siltation loading," Forest Policy and Economics, Elsevier, vol. 106(C), pages 1-1.
    4. Kim, Youngho & Lichtenberg, Erik & Newburn, David, 2022. "Payments and Penalties in Ecosystem Services Programs," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322103, Agricultural and Applied Economics Association.
    5. Campbell, Elliott T., 2018. "Revealed social preference for ecosystem services using the eco-price," Ecosystem Services, Elsevier, vol. 30(PB), pages 267-275.
    6. Sidemo-Holm, William & Smith, Henrik G. & Brady, Mark V., 2018. "Improving agricultural pollution abatement through result-based payment schemes," Land Use Policy, Elsevier, vol. 77(C), pages 209-219.
    7. Bartkowski, Bartosz & Droste, Nils & Ließ, Mareike & Sidemo-Holm, William & Weller, Ulrich & Brady, Mark V., 2021. "Payments by modelled results: A novel design for agri-environmental schemes," Land Use Policy, Elsevier, vol. 102(C).
    8. Hao Wang & Sander Meijerink & Erwin van der Krabben, 2020. "Institutional Design and Performance of Markets for Watershed Ecosystem Services: A Systematic Literature Review," Sustainability, MDPI, vol. 12(16), pages 1-26, August.
    9. Traxler, Emilia & Li, Tongzhe, 2020. "Agricultural Best Management Practices, A summary of adoption behaviour," Working Papers 305271, University of Guelph, Institute for the Advanced Study of Food and Agricultural Policy.
    10. Duke, Joshua M. & Liu, Hongxing & Monteith, Tyler & McGrath, Joshua & Fiorellino, Nicole M., 2020. "A method for predicting participation in a performance-based water quality trading program," Ecological Economics, Elsevier, vol. 177(C).

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