Do farmers prefer increasing, decreasing, or stable payments in Agri-Environmental Schemes?

7 July 2020

Nearly all Agri-Environmental Schemes (AES) offer stable annual payments over theduration of the contract. Yet AES are often intended to be a transition tool, designed totrigger changes in farming practices rather than to support them indefinitely. A decreasingsequence of payments thus appears particularly attractive as a reward structure for AES.The standard discounted utility model supports this notion by predicting that individualsshould prefer a decreasing sequence of payments if the total sum of outcomes is con-stant. Nevertheless, the literature shows that numerous mechanisms, such as increasingproductivity, anticipatory pleasure, and loss aversion, can, by contrast, incline individualsto favor an increasing sequence of payments. To understand the preferences of farmersfor different payment sequences, we propose a review of the mechanisms highlighted bythe literature in psychology and economics. We then test farmers’ preferences for stable,increasing or decreasing payments through a choice experiment (CE) survey. In this sur-vey, farmers are offered hypothetical contracts rewarding the planting of cover crops. Toreduce hypothetical bias, the choice cards were designed following repeated interactionswith local stakeholders. One hundred twenty-three French farmers, about 15% of thosecontacted, responded to the survey. Overall, farmers do not present a clear willingnessto depart from the usual stable payments. Nevertheless, 17% declare a preference for in-creasing sequences of payment. Moreover, we find a significant rejection of decreasingpayments by farmers with a lower discount rate or farmers more willing to take risks thanthe median farmer, contradicting the discounted utility model