Modeling transaction costs in household adoption of landscape conservation practices

Abstract

AbstractMany conservation programs provide economic incentives for landscape best management practices adopted by households. These programs typically include multiple administrative procedures that impose transaction costs, such as requirements for project design and inspections. The literature provides little insight on the relative influence of common transaction costs such as these on best management practice adoption. This paper develops a model to estimate the simultaneous effects of multiple transaction costs linked to common administrative requirements within residential cost‐share incentive programs. The model decomposes the magnitudes and effects of different transaction costs that vary across agents and programs, as a function of requirements for project design, contracting, inspections, and payments. It further identifies the types of program changes that would cause the greatest increases in efficiency due to transaction cost attenuation, measured as reductions in agents’ willingness to accept to adopt best management practices. The model is implemented using a discrete choice experiment on cost‐share programs that incentivize urban stormwater best management practices in the Baltimore metropolitan region, focusing on landscape conservation practices that reduce nonpoint source pollution. Results find large and heterogeneous transaction costs that are sufficient to eliminate much of the incentive provided by typical cost‐share payments. These findings suggest mechanisms whereby cost‐share programs can be designed to optimize enrollment when multiple transaction costs are relevant.