Revisiting motivations for on-farm environmental practices: Opportunity wage and community effect

Abstract

Previous studies consider the installment cost of environmental practices and farming yield loss as the basis for incentive payment in environmental programs. This study introduces two additional dimensions. We first demonstrate that the incentive payment is also determined by opportunity wages from non-farming activities. Second, we show that in addition to individual farm characteristics, community characteristics also play a role in determining the compensation required by farmers to adopt environmental practices. The empirical analysis examines these factors by using survey data on farmers’ water quality improving practices combined with several publicly available data sources on non-farming wages from selected industries, as well as characteristics of the community the farmers are located in. Findings suggest that opportunity wages from non-farming activities have significant positive effects on compensation required thus on environmental practice adoption. Community characteristics such as community wealth and resident composition can also influence adoption decisions. Additional abatement of nonpoint source pollution is unlikely to be accomplished if the incentive payment does not consider non-farming incomes and characteristics of the local community.