Does transaction costs expense create transaction gains for farmers participating in an agri-environmental scheme?

Abstract

Participating in agri-environmental schemes (AES) induces transaction costs for farmers, originating from time and money spent on tasks related to participation. High transaction costs may inhibit scheme participation, which would endanger the environmental goals aspired. To date, farmers’ transaction costs have been investigated from a cost-minimising perspective, implying fixed gains from participation. Nonetheless, participation contracts may contain negotiable parts. In such a case, especially, cost-constituting tasks undertaken by farmers’ own attempts could serve gain-maximising: Farmers can utilise additional information to increase their transactional gain, namely the payment. This paper addresses this question by investigating transaction costs of farmers participating in a site-specific grassland extensification scheme in Hesse, Germany, which contains negotiable features. Upon insights from information economics and transaction cost economics, the study discusses possible gains and tests the impact of farm and scheme-related features on both absolute and relative transaction costs, the latter conceptualised as payment/total transaction costs ratio. Results reveal that a higher transaction costs expense goes in line with a lower payment/transaction costs ratio; however, higher transaction costs expense predominates for particular farms features indicating dependency on AES income. Thus, voluntary transaction cost expenses seem to serve as a safeguard for securing participation-related income.