Agricultural Economics Department

 

Date of this Version

2009

Comments

Prepared for presentation at the Agricultural & Applied Economics Association’s 2009 AAEA & ACCI Joint Annual Meeting, Milwaukee, WI, July 26-28, (2009) p. 1-46; Copyright © 2009 by Robert Sheeder and Gary D. Lynne.

Abstract

Since the destruction and despair caused by the dust bowl of the 1930’s, Americans and their government have taken a keen interest in natural resource conservation policy on agricultural land throughout the country. As a reflection of this, the farm bill of 1936 entitled the “Soil Conservation and Domestic Allotment Act” included for the first time provisions that provided payments and support to farmers willing to employ soil conservation measures on their farms (Cain and Lovejoy, 2004). While the main purpose of this bill was to provide financial support to impoverished farmers dealing with low commodity prices, the fact remains that natural resource conservation was starting to become an important issue for the American public.

Over time, conservation titles in the farm bill have evolved into legislation that not only protect soil from erosion, but they now include incentives for improving water quality and water quantity problems, provisions that prohibit draining wetlands for agricultural production, land retirement programs such as the Conservation Reserve Program (CRP), and working land programs like the Environmental Quality Incentives Program (EQIP). Expenditures for conservation measures have also significantly increased over time. For example, the United States Department of Agriculture (USDA) provided nearly 4.5 billion dollars for conservation programs in the farm bill for fiscal year 2005, compared to 500 million dollars for the 1983 fiscal year (ERS, 2007). It also appears this trend of increased conservation expenditures will continue, as the 2008 farm bill doubles the level of conservation funding under the previous farm bill. Of this new money, nearly two thirds is scheduled to be allocated to working land programs like EQIP (ERS, 2007).

While giving monetary payments to individual producers engaging in conservation activities is ultimately a policy decision, the underlying assumption for these payments is one borne out of traditional microeconomic theory. Specifically, microeconomics theory assumes that all producers are rational agents engaging in activities that will maximize profits. However, most conservation activities are not inherently profitable to the individual farmer; so, conservation payments are provided under the assumption that the only way to increase participation in conservation programs is to increase profits received by the individual farmer. In effect, conservation payments can be seen as incentives or “bribes” that should make conservation activity more attractive to the individual producer.

If the profit-maximization theory of standard microeconomics is correct in predicting individual farmer behavior, it would then be expected that the rapid expansion in government expenditures for conservation payments to individual producers would lead to great improvements in environmental quality throughout the country. Recent empirical evidence, though, is showing that this is not the case. For example, modeling of conservation behavior in the upper Mississippi River region indicated that increasing conservation payments at the individual producer level would produce minimal change in rates of soil erosion, nitrate leaching, and nitrate runoff in the area (Wu, Adams, Kling, and Tanaka, 2004). These authors concluded that conservation payments, which were modeled as an increase in profits to individual farmers, are not likely to be cost effective on their own for addressing pollution problems in the Mississippi River and the Gulf of Mexico.

Based on anecdotal evidence and empirical research, it appears that individual farmers are motivated to engage in (or not engage in) conservation strategies by a multitude of factors. While it is undeniable that profits do play a role in conservation decisions, the assumption that it plays the only role in economic decision making is highly contentious. For instance, work by Nowak and Korsching (1998) indicates that inadequacies in U.S. soil and water conservation policies can be attributed to a misunderstanding of the human dimension (sociological and psychological factors) of farmers, and not a lack of conservation expenditures. Work from Sen (1977) also concludes that individuals may ultimately make choices based on sympathy and commitment to others, even if the outcomes do not maximize a person’s self-interest. He even writes that a person pursuing only selfish interests, as is modeled in microeconomics, is nothing more than a “rational fool” and a “social moron” (Sen, 1977). Even Adam Smith’s The Theory of Moral Sentiments indicates that there are fundamental elements of human nature that transcend that of pursuing individual self-interest (Smith, 1790).

While it has long been realized that both financial and non-financial factors motivate farmer behavior, the conservation literature has been unable to evolve a settled and unified account of egoistic-financial and non-financial social motives that ultimately drive human behavior (Chouinard, Paterson, Wandschneider, and Ohler, 2008). However, it seems that the theoretical framework of metaeconomics (Lynne, 1999, 2006ab), which combines egoistic/hedonistic self-interest motivations with empathetic/sympathetic other-interest motivations into one coherent theory of human behavior, can provide new insights into farmer conservation behavior and human behavior, more generally. Therefore, this emerging framework was used to analyze tillage decisions in the context of a water quality conflict between upstream farmers and downstream water suppliers in the Blue River/Tuttle Creek Lake Watershed of Nebraska and Kansas.

The organization of this paper will proceed as follows. A brief review of the conservation literature, including papers that describe financial motives, non-financial motives, and multiple-motive/multiple-utility for conservation adoption, is presented in Section II. Section III presents the theoretical framework used to analyze tillage decisions in the Blue River/Tuttle Creek Lake Watershed. The empirical model is described in Section IV. Of particular interest are variables that measure financial capacity, capacity to empathize/sympathize, preferences for control over farming practices, and habitual tendencies. Section V presents the major findings of this study, and finally, Section VI provides concluding statements.