Improving the Effectiveness of Conservation Programs through Innovative Reverse Auctions and Sensible Enrollment Restrictions

Date: 
Sep 2017

Issue

Agricultural conservation programs provide cost-shares or subsidies to incentivize farmers’ voluntary adoption of key conservation practices, and are a leading policy instrument to curb nutrient loading. However, some studies have shown that certain characteristics of conservation programs can hinder the ability to deliver water quality improvements at a low cost. Programs that offer fixed payments or cost shares may not be cost-effective if the payments exceed the level needed to induce farmers to opt into the program. Or poorly designed conservation programs may buy less than anticipated.

Objective

This project will assess the value of reverse auctions and enrollment restrictions in improving the cost-effectiveness of conservation programs offered to Iowa farmers. Standard conservation programs offer a flat incentive or cost share to farmers. In a reverse auction, landowners submit bids to enroll in the conservation program, which could lower program costs while maintaining water quality improvement targets. Enrollment restrictions have the goal of reducing unintended consequences in current programs.

Approach

A key component of this project will be a mail and online survey of Iowa farmers in the Boone and Raccoon River watersheds. The survey will collect information on currently adopted practices, practices farmers plan to adopt, and current conservation program enrollments and subsidy levels. Next, each farmer will be presented one of the four versions of a hypothetical conservation program that varies in two dimensions — how they receive payments or submit bids, and whether there are enrollment restrictions. By comparing the practices farmers report they will adopt with and without enrollment in the conservation program, the net effects of the program can be assessed.

Project Updates

June 2020

FINAL REPORT

The survey used for the study was developed by the principal investigators in cooperation with staff from the Iowa State Center for Survey Statistics and Methodology (CSSM). It consisted of approximately 70 questions. Respondents were sent a letter to invite them to complete a web survey. To allow for an economic experiment, dozens of different scenarios were programmed. A paper copy of the survey was mailed to non-respondents. Forty different versions of the paper survey were developed, each with different variations of the economic experiment. The survey included questions related to the farmer’s current and anticipated land use and conservation practices to reduce nutrient loss. The economic experiment section contained questions about hypothetical voluntary conservation contracts. Selected farmer demographic questions were also included.

In collaboration with the principal investigators, CSSM staff drafted the web survey invitation letter, survey cover letter and reminder postcard, mailed the survey packets and followed up with contacts to non-responders. The letters explained the purpose of the study, requested the farmer’s participation and assured complete confidentiality of all information provided. The CSSM toll-free phone number was included so that sampled farmers could call to ask questions or express concerns about the project. The Iowa State University Institutional Review Board approved the survey as exempt in September 2018. An invitation letter was sent to the 1800 sampled farmers on March 11, 2019, including a $2 bill cash incentive. Further contacts with the sampled farmers took place between April 9, and August 2, 2019 (178 returned completed paper surveys and 194 completed online). Surveys that were returned by the US Post Office marked as undeliverable were also recorded.

Survey Outcomes and Response Rates

  • The sample consisted of 1800 farmers.
  • A total of 377 completed surveys were received. Response rates are calculated as a ratio of the completed surveys to eligible sample. The response rate for this study is 30.0% (377/1452).
  • A total of 327 cases (18.2% of 1800) were classified as not eligible. (Most of these were farmers who reported that they did not intend to operate a farm in 2019 and 2020, were deceased or reported their farms were not located in the sampled watersheds). This resulted in an eligible sample of 1452 farmers.
  • Thirty surveys were returned by the USPS as not deliverable. (2.1%) Refusals were received from 8 people (0.6% of the eligible sample), either by phone calls or blank surveys returned with notes. Another 32 respondents accessed the web survey but only answered the first few questions. These farmers were sent the paper copy of the survey and did not respond, so were included as part of 1058 non-respondents, which comprised 72.9% of the eligible sample (1058/1452).

Findings

We find that farmers prefer guaranteed-price cost shares to reverse auctions that require competitive bidding. To induce the same number of interested parties, a reverse auction would need to offer a higher maximum payment than a similar cost-share program. However, this does not mean that the reverse auction would definitely be more expensive, as we also observe substantial bidding below the maximum allowable payment, with only ~40% of farmers making the maximum bid and ~25% of farmers bidding less than half of the maximum bid.

Related activities and accomplishments

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