The conservation reserve program as a least-cost land retirement mechanism

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Abstract

Mechanism design theory is used to characterize the properties of a least-cost CRP. If marginal land rents decrease with acres farmed then a least-cost CRP is a set of nonlinear price schedules. If marginal land rents are independent of acres farmed then an offer system constitutes a least-cost CRP. The least-cost offer system gives a useful estimate of the upper bound of a least-cost CRP. Empirical results suggest that a 34-million-acre CRP should have cost no more than $1 billion per year.

Original languageEnglish (US)
Pages (from-to)93-105
Number of pages13
JournalAmerican Journal of Agricultural Economics
Volume77
Issue number1
DOIs
StatePublished - Feb 1995

Bibliographical note

Funding Information:
This research was funded by the U.S. Department of Agriculture's Economic Research Service: project 58-3AEM-9-80084. The author benefited greatly from many discussions with Robert G. Chambers. He also acknowledges helpful comments from Dave Ervin, Bruce Gardner, Ralph Heimlich, John Miranowski, Tiro Osborn, Lemma Senbet, and three anonymous referees. Finally, advice by Eric Slud (Department of Statistics, University of Maryland) greatly improved the empirical section.

Keywords

  • Asymmetric information
  • Contract
  • Mechanism design
  • Private information

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