Abstract
Leading up to the 2014 Farm Bill, the House of Representatives and the Senate proposed alternative changes to the incentive structure for farmer conservation efforts. While both include crop insurance subsidies, the version proposed by the Senate made such subsidies conditional on conservation efforts. This study uses experimental methods to analyze the efficacy of these two alternative designs in comparison to the previous, 2008 Farm Bill, design and investigates in how far additional nudging for empathy can improve on the efficiency. The results support the contention that solely offering financial incentives, as is the case in the 2014 Farm Bill, leads to crowding-out of intrinsic motivations and hence may be counterproductive. Similarly, nudging for empathy by itself is relatively ineffective. Nudging in conjunction with financial incentives, however, has a statistically and economically significant and positive impact on conservation behavior and may therefore offer a relatively cheap way to improve the efficiency of conservation-related legislative efforts.
Highlights
Current and past farm practices frequently lead and have led to significant environmental degradation in the form of, among others, soil erosion (Note 1) as well as fertilizer and chemical-related water pollution
The lack of statistical significance between the Senate and House version suggests that the financial incentive compensates for the crowding-out effect that has been shown in Frey and Jegen (2001), Frey and Oberholzer-Gee (1999) and Gneezy and Rustichini (2000a, 2000b)
To achieve better results a policy has to provide financial incentives and counteract the impact of this crowding-out by, for example, opening communication channels between the decision maker and the affected party to allow for empathy nudging
Summary
Current and past farm practices frequently lead and have led to significant environmental degradation in the form of, among others, soil erosion (Note 1) as well as fertilizer and chemical-related water pollution. One key difference between the two proposals by the Senate and the House of Representatives was in the proposed changes as related to conservation compliance, which gives the focus to this study Both proposals continued to offer crop insurance subsidies, but the version proposed by the Senate, and eventually adopted in the 2014 Farm Bill, made this subsidy conditional on conservation compliance whereas the version proposed by the House of Representatives provided this subsidy without compliance. Such a difference in the incentive structure can potentially result in substantially different levels of conservation effort by farmers.
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