Measuring private transaction costs of European agri-environmental schemes

Abstract

Recent changes in European agri-environmental policy allow farmers’ transaction costs (TCs), also called private TCs, to be taken into account when calculating compensation payments for agri-environmental schemes (AESs). This gives rise to questions as to the significance of these costs and the methodologies used to measure them. In this paper, private TCs are measured and analysed using two methodologies: (1) through a survey of general perceptions of TCs and (2) through a one-year registration system for monitoring labour hours, operational and administrative costs and differences in revenue between a parcel of land in an AES and a comparable area of land not in a comparable scheme. The results obtained with both methodologies show that private TCs are significant and not to be underestimated. They represent about 15% of the total AES-related costs and about 25% of the compensation payment. The most important cost factor resulting from an AES-uptake is the income foregone which represents more than 50% of the total costs

How Local Intermediaries Improve the Effectiveness of Public Payment for Ecosystem Services Programs: The Role of Networks and Agri-Environmental Assistance

“…These transaction costs arise with the provision of advice and are not always adequately compensated. However, the provision of information and assistance reduces farmers' private transaction costs and thereby the total costs of participation [55,56] and is thus considered to trigger participation. Within the last CAP rounds, advice was considered to be an important component to tackle the increasing ecological challenges within the agrarian landscape (see, e.g., Regulation (EU) 1305/2015 [57]).…”

“…This finding is also in line with other literature. Information and assistance encourages farmers' willingness to adopt AEMs mainly because private transaction costs are reduced [36,40,55,63]. Private transaction costs arise, in particular, up until the point when the final signature is due, i.e., for private information gathering and bargaining and decision-making processes [7].…”

“…Information and assistance encourages farmers' willingness to adopt AEMs mainly because private transaction costs are reduced [36,40,55,63]. Private transaction costs arise, in particular, up until the point when the final signature is due, i.e., for private information gathering and bargaining and decision-making processes [7]. However, although the provision of information and advice is positively correlated to farmers' willingness to adopt AEMs (indirect participation variable), we cannot find that such service provision can be related to the overall number of AEMs contracted (the direct participation variables).…”

“…Farmers receive governmental payments to compensate for their opportunity costs and for additional costs. The adoption of AEMs is voluntary on the part of farmers; contracts are commonly "take it or leave it contracts" [7]. However, the large governmental agri-environmental programs have frequently been criticized for their low levels of environmental effectiveness [8][9][10][11].…”

Learning from agri-environment schemes in Australia. Investing in biodiversity and other ecosystem services on farms

“…Public administration transaction costs of agri-environmental schemes across Europe was initially 102 per cent of payments to landholders (1992/93) but declined over time to 18 per cent (1998/99) (Falconer et al 2001). Mettepenningen and Van Huylenbroeck (2009) explicitly look at private transaction costs of an agri-environmental scheme and report that, on average, these are 15 per cent of the total cost of the policy.…”