Palm-Forster, L. H. 2015. Cost-effective conservation programs to enhance ecosystem services in agricultural landscapes. Dissertation, Michigan State University, East Lansing, Michigan.

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Conservation programs promote voluntary adoption of agricultural management practices that can mitigate nutrient runoff and generate ecosystem services (ES) in working landscapes. However, despite billions of dollars spent on conservation programs annually, agricultural pollution remains a persistent problem. Using experimental auctions and behavioral models that integrate economic and ecological information, the first two essays of this dissertation identify how conservation programs can be designed to cost-effectively improve aquatic ecosystem services in agricultural landscapes. The third essay estimates some of the benefits from successful conservation programs in terms of averted welfare loss when beach closures are caused by harmful algal blooms resulting from agricultural nutrient runoff.

Essay one analyzes farmer preferences for different types of conservation incentives, including payments, green insurance, tax credits, and price premiums. I estimate how the type of incentive offered affects farmer willingness to adopt agricultural management practices that reduce nutrient runoff from cropland in the Maumee watershed to help abate damaging algal blooms in western Lake Erie. I evaluate how the cost-effectiveness of various incentive types depends on farmer willingness to enroll in the program and the level of payment or other financial incentive they require. In general, the most cost-effective contracts are ones that spatially target high priority areas of the watershed and offer financial incentives with low transaction costs for farmers such as payments and tax credits.

Essay two identifies barriers and deterrents to participation in conservation auctions and explores how participation affects cost-effectiveness. Outcomes are reported from two conservation auctions that were implemented in two counties in NW Ohio as part of an ongoing effort to reduce harmful algal blooms in Lake Erie. Bids were evaluated based on their expected environmental benefits — specifically their estimated reductions in bioavailable phosphorus loadings to Lake Erie as predicted by biophysical models. Only 1% of landowners submitted bids. A follow-up survey revealed three barriers to bidding: knowledge about the auction program, ineligibility, and transaction costs of participation. Three policy scenarios are simulated using a mathematical programming model to demonstrate how transaction costs reduce farmer participation and erode cost-effectiveness of conservation auctions relative to uniform payment programs. Cost-effectiveness is greatest in policies with low transaction costs that can spatially target environmentally vulnerable parcels.

Essay three uses two benefit transfer approaches to estimate welfare losses from beach closures in Lake Erie caused by harmful algal blooms. I identify how estimates differ between the two transfer approaches – value transfer and function transfer – and evaluate conditions under which the more time-consuming and data-intensive function transfer is worth the effort compared to a simple value transfer. In this study, benefit function transfer was essential to estimate beach demand (trips) and demand elasticity (change in trips), but when evaluating individual beach closures with known trip demand, the function transfer and value transfer yielded similar results for individual beach closures. Results from the two transfer methods deviated (up to 106%) when multiple beaches closed because value transfer did not account for the loss of beach substitutes. This result emphasizes the importance of using transfer methods that account for changes in trip demand to estimate welfare loss from regional beach closures.

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