Land Heterogeneity, Agricultural Income Forgone and Environmental Benefit: An Assessment of Incentive Compatibility Problems in Environmental Stewardship Schemes

This paper examines the issue of incentive compatibility within environmentalstewardship schemes, where incentive payments to farmers to provide environmentalgoods and services are based on foregone agricultural income. The particularfocus of the paper is land heterogeneity, either of agricultural orenvironmental value, leading to divergence between the actual and sociallyoptimal level of provision of environmental goods and services. Given land heterogeneity,such goods and services are likely to be systematically over- or underprovidedin response to a flat rate payment for income foregone.