Citation:

Lee, E., Matthew Heberling, C. Nietch, AND A. Safwat. Assessing a pay-for-performance conservation program using an agent-based modeling framework (USDA-ERS branch seminar). USDA-ERS branch seminar, RTP, NC, March 10, 2023.

Impact/Purpose:

The purpose of this paper is to compare the cost-effectiveness of pay-for-performance (PFP) to pay-for-practice to reduce nonpoint source pollution and consider farmers’ social interactions (networking) and transaction costs given a program budget constraint. An agent-based model is developed and linked to the soil and water assessment tool (hydrology model) in order to assess the changes in crop yield and water quality. Results show that PFP program has about 30% lower costs to reduce 1lb/acre total phosphorous compared to a pay-for-practice program. This research will be helpful to regional policymakers and agricultural extension agents to increase the effectiveness of cost-share programs.

Description:

Agricultural best management practices (BMPs) play an important role in reducing nonpoint source pollution.  To increase the adoption of BMPs, a variety of incentive programs exist.  One gaining attention is pay-for-performance (PFP) which uses baseline conditions and modeling to identify BMP nutrient reduction scenarios for farmers.  Payment is based on the nutrient control from the BMP scenarios and farmers choose the scenario that works best for their situation.    Using an Ohio watershed with routine water quality monitoring since 2008, this paper compares the cost-effectiveness of PFP to pay-for-practice. An agent-based model, programmed in Python, is linked to the soil and water assessment tool. Results show that the PFP program has about 5% lower costs to reduce 1lb/acre total phosphorous compared to a pay-for-practice program. When transaction costs are included in the model, the participation in a PFP program falls, but spillover effects can help offset those transaction costs.

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