+ The cost of policy simplification in conservation incentive programs Amanda Luna Mera ECL 212 B Spring 2014

The cost of policy simplification in conservation incentive programs Ecology Letters (2012) Journal in Ecology Keywords: Ecological Letters, community ecology, microbial ecology, evolutionary ecology, population ecology, molecular ecology, infectious disease ecology, conservation ecology

The authors examine how ecology and socioeconomic sciences can be integrated more effectively to inform conservation strategies Paul Armsworth, Ecology and Evolutionary Biology, University of Teneessee B.S. in Mathematics and PhD in Mathematics and Biological Sciences analyzed the integrated models. Szvetlana Acs – University of Stirling analyzed the integrated models. Martin Damiller- PhD in Biology Conducted and analyzed ecological surveys Kevin Gaston –PhD in Biology Nick Hanley - Economics Paul Wilson – Agricultural and Environmental Sciences Coordinated the farm surveys

The design of incentive payment programs for biodiversity conservation must be cost- effective Evaluations have given mixed results. Cost-effectiveness evaluations have been limited because the cost to farmers is private information. Other variables are landscape, taxonomic group (biodiversity indicator), Incentive payment Farmers take management actions to provide environmental benefits

Objective They built an integrated model of biodiversity change and farm production choices to evaluate cost-effectiveness of AE. It examined the effectiveness of different payment schemes using field parameterized, ecological economic models of extensive grazing farms. Biodiversity Production Agricultural outputs Profit maximizing farm management plans Indicator of biodiversity bird species

+ Methods

They estimated farmers’ marginal private costs of enhancing a biodiversity target Farmers’ MAC Costs relating improvements in a biodiversity target to associated foregone farm profits Tradeoff curves Purchasing the maximum possible improvement for a fixed budget. Optimal Policy characteristics Benchmark to estimate the efficiency cost of policy simplifications common in AES programs. Cost of policy simplificaton

44 extensive farms in the UK Sheep, dairy or beef cattle Biodiversity measured twice in 2007 Density (based on bird counts) Richness They gathered information from socioeconomic and biodiversity surveys in farms across the UK. Surveys included: Land area Land type use Production activities Commodity produced (crops,livestock) Inputs (fertilizer, labor) Subsidy payments received. Surveys included: Land area Land type use Production activities Commodity produced (crops,livestock) Inputs (fertilizer, labor) Subsidy payments received. Dark Peak Eastern Moors Southwest Peak

The profit maximization condition included the production and the biodiversity constraints. max V = p. x Net farm income Gross margins Farming activities Ax ≤ b x i ≥0 Ax ≤ b x i ≥0 C j (x) = d j Technical coefficients Resource endowments Density of birds Diversity constraint Farming activities Linear Production Constraints Non-linear biodiversity Constraints relates the response of a given biodiversity indicator to the farm management variables

The variation in the tradeoff curves was explained by comparing the elasticities between levels of diversity targets. Elasticity: how responsive an economic variable is to a change in another Tradeoff between maximum farm income and biodiversity improvement. Negative elasticities Change in Net farm income Change in conservation target

+ Results

The sources of failure were simplifying spatial and farm income variation. Cost-effective policies Maximum farm income reduced = incentive Non cost-effective policies Farm income forgone= incentive Farms go out of business Fixed incentive payments Loss of efficiency when targeting enhancements in spp richness

The tradeoff curves relate the percentage reduction in farm income that results from a given percentage increase in biodiversity target.` Each curve correspond to the farm types: Solid- Dark Peak Dashed –Eastern Moors Dot-dashed –Southwest Pea k a)Eurasian curlew b)Skylark c)Requiring simultaneous enhancement in density of both spp. d)Total density of birds e)Total richness of birds f)Requiring simultaneous enhancements in total density and total richness.

The policy simplifications result in a 49–100% reduction in biodiversity relative to the maximum through the optimal policy Simplifications: Not including nonlinear costs of farmers (fixed costs) Not including spatial variation in target allocation Spatially uniform pricing It is worth expending 70% or more to implement policies that recognize the regional variation in costs of enhancing biodiversity and that allocate incentive contracts accordingly. Ecological Costs of policy simplifications as the proportion of the maximum biodiversity gain available for a given budget with the optimal policy that is achieved with each simplified policy.

Inefficiencies stem from not dealing with spatial heterogeneity in the PC of producing biodiversity benefits. Spatial differentiation Conservation targets Species richness Species density Environmental variation Private costs of farmers Purchasing conservation improvements at a fixed cost rather than employing a sliding payment rate only incurs a comparable loss of efficiency when targeting enhancements in species richness Conceptually, does the proposed payment to landowners reflect the supplier’s (landowner’s) WTA or the demander’s (public’s) WTP? Demander’s WTP What are the implications for surplus from the transaction? -Inefficient outcome -It is not cost-effective from the perspective of maximizing budget

+ Critique and discussion

r 2 was relatively low (0.08– 0.31). Sensitivity of results to uncertainty in the regression Covariates describing habitat increase r 2 Excluded  not included in farm management The nonlinear regression focused on common farm management variables. Management variables: The sample size preclude to include the covariates. Underestimate how inefficient policy simplifications can be C j (x) = d j number of sheep number of cattle tons of fertiliser number of cuts

Incentive payment programs aim to deliver biodiversity benefits cost-effectively. Which definition of cost-effectiveness do incentive payment programs match? Minimizing costs Maximizing budget use The implementation cost of complex policies are worth bearing when benefits are larger

The evaluation of different payment schemes must consider distributional impacts. Do you agree that what they identify as most cost-effective will deal with the distributional implications? What exactly are landowners paid for in this analysis? By what metric would we verify that the landowner has met the obligation?