Optimizing agri-environment schemes for cost-effectiveness, fairness or both?

Abstract

AbstractWe investigate empirically trade-offs between improving the cost-effectiveness of an agri-environment scheme (AES) and its distributional impacts, applying the criteria of equality (equal payments), equity (equal producer surplus), and the Rawlsian maximin criterion (here understood as maximizing the producer surplus in the poorest region). Using an ecological-economic modelling procedure, we simulate an existing grassland AES in Saxony, Germany and design two cost-effective alternatives—one AES with spatially homogeneous payments and one with regionally differentiated payments—and compare the distributional impacts of the three schemes. For spatially homogeneous payments, we find a trade-off between cost-effectiveness and equality but not equity and the Rawlsian maximin criterion. This suggests that cost-effectiveness improvements do not necessarily go against distributional concerns. However, the substantial cost-effectiveness improvements that can be achieved with regionally differentiated AES come at the expense of distributional setbacks according to all applied fairness criteria.