Knowledge Spillover and Positive Environmental Externality in Agricultural Decision Making under Performance-Based Payment Programs

Agricultural activities have imposed significant impacts on water resources, leading to hypoxic zones and harmful algal blooms all over the world. Government agencies, nongovernmental organizations, and individuals have been making various efforts to reduce this non-point source pollution. Among those efforts, even the more cost-effective examples of performance-based environmental payment programs generally have low participation rates. We investigate the effects of externalities in farmers’ decisions on neighboring farms, incorporating both a knowledge spillover effect and a positive environmental outcome externality of farmers’ best-management practice (BMP) adoption decisions. Our focus is on how these effects may influence the outcome of performance-based payment programs and how policy makers might recognize these effects in the design of cost-effective policies to promote program participation and BMP adoption. Rather than imposing an assumption of profit-maximization or forward-looking behavior, we allow outcomes to emerge from interactions among neighboring farmers. We recommend cost-effective policies across communities depending on their composition. It is more cost-effective to target communities with fewer innovators and/or target the programs towards the least-innovative individuals.

Title	Knowledge Spillover and Positive Environmental Externality in Agricultural Decision Making under Performance-Based Payment Programs
Creator	Liu, Hongxing
Creator	Ruebeck, Christopher S.
Publisher	Agricultural and Resource Economics Review
Academic Department	Economics
Division	Social Sciences
Organization	Lafayette College
Date Issued	August 2020
Date Available	2020-10-12
Type	Article
Language	English
Keyword	knowledge spillover
	Agent-based modeling
	externality
	non-point source pollution
	performance-based payment programs
	agricultural decision
Bibliographic Citation	Liu, H. and C. S. Ruebeck. 2020 Aug. "Knowledge Spillover and Positive Environmental Externality in Agricultural Decision Making under Performance-Based Payment Programs." Agricultural and Resource Economics Review 49 (2): 270-290.
Standard Identifier	DOI 10.1017/age.2020.18
Standard Identifier	Handle 10385/hm50tt01n
Permalink	http://hdl.handle.net/10385/hm50tt01n
Rights Statement	Creative Commons - Attribution
Rights Holders	Liu, Hongxing
Rights Holders	Ruebeck, Christopher S.