Implementing the Water Framework Directive: Contract Design and the Cost of Measures to Reduce Nitrogen Pollution from Agriculture

Abstract

The performance of different policy design strategies is a key issue in evaluating programmes for water quality improvement under the Water Framework Directive (60/2000). This issue is emphasised by information asymmetries between regulator and agents. Using an economic model under asymmetric information, the aim of this paper is to compare the cost-effectiveness of selected methods of designing payments to farmers in order to reduce nitrogen pollution in agriculture. A principal-agent model is used, based on profit functions generated through farm-level linear programming. This allows a comparison of flat rate payments and a menu of contracts developed through mechanism design. The model is tested in an area of Emilia Romagna (Italy) in two policy contexts: Agenda 2000 and the 2003 Common Agricultural Policy (CAP) reform. The results show that different policy design options lead to differences in policy costs as great as 200-400%, with clear advantages for the menu of contracts. However, different policy scenarios may strongly affect such differences. Hence, the paper calls for greater attention to the interplay between CAP scenarios and water quality measures.

Understanding linkages between common agricultural policy and High Nature Value (HNV) farmland provision: an empirical analysis in Tuscany Region

“…For the other municipalities, a non-linear transformation is assumed to return a value close to one when nitrogen is less than 20 kg per hectare, and close to zero when the value is higher than 190 kg per hectare. These two threshold values are compatible with the current amount of nitrogen use and are included into the range of restrictions for nitrogen sensitive areas (Bartolini et al, 2007).…”

“…Since the 1990s, the concept of HNV has been used to relate certain farm activities to "a natural value" (Baldock et al 1993). HNV is a broad concept and includes both HNV farmland areas and HNV farming systems.…”

“…The upper boundary represents a set of constraints for nitrogen sensitive areas (Bartolini et al, 2007).…”

A DSS for sustainable development and environmental protection of agricultural regions

“…Sumpsi et al (1993Sumpsi et al ( , 1997 and Amador et al (1998) consider this methodology suitable and efficient for the analysis of decision making and the simulation of agricultural systems based upon multicriteria techniques applied to agriculture. This methodology has been successfully implemented on real agricultural systems (Bartolini et al 2007a Manos et al 2004aManos et al , b, c, 2006Pujol et al 2006). We employed this methodology to estimate a surrogate utility function in order to simulate farmers' decision-making processes.…”

Analysis of policy instruments for control of nitrate pollution in irrigated agriculture in Castilla y León, Spain

“…In addition, other alternative instruments designed to control nitrate pollution would be worth to be compared. In this sense, a particular agro-environmental programme could be thought in order to compensate farmers for imposing limitation to the use of nitrogen (Bartolini et al, 2007). Appendix.…”