Analyzing transaction costs in agri-environment-climate measures

Agriculture is a significant contributor to environmental challenges such as soil degradation, water pollution, and loss of biodiversity. Unfortunately, these problems are only expected to worsen due to the increasing demand for food from a growing global population. Sustainable practices are crucial to mitigate these negative impacts. Agri-environment-climate measures (AECMs) incentivize farmers to adopt sustainable practices by providing financial or other incentives. Generally speaking, AECMs involve a contractual agreement between farmers and the government. They have been used as a policy tool to promote sustainable farming practices and help reduce soil erosion, improve water quality, preserve biodiversity, and mitigate greenhouse gas emissions. However, transaction costs (TC) associated with enrolling in these voluntary programs can act as barriers to participation, especially for small-scale farmers. It has been observed that high private TC can discourage farmers from participating in AECMs, which in turn can lead to a low efficacy of the program and failure in the achievement of environmental objectives. The literature review conducted as part of this Ph.D. thesis revealed that studies addressing the analysis of TC in AECMs are rather scarce and mainly utilize quantitative approaches, most of which have tried to measure TC and identify factors capable of influencing them. Attending to these potential gaps in the literature this Ph.D. thesis sought to achieve two main objectives. Firstly, it aimed to gain deeper insights into the way in which the perceived level of TC can affect farmers’ attitudes and decisions toward the implementation of AECMs. Secondly, it aimed to examining possible configurations of factors influencing such perceptions through a qualitative comparative analysis (QCA). Results showed that factors, such as the presence or absence of intermediaries helping farmers to carry out some of the most time-consuming activities, the organizational structure of the contract, and the experience farmers acquire through repeated participation can affect the perceptions farmers have regarding the level of TC in AECMs as well as their attitude toward participation in these programs. Additionally, results from the QCA revealed that it is not possible to achieve a low perceived level of TC among farmers if the level of asset specificity required by their AECM is high. Additionally, results also showed that a low perceived level of TC among farmers is achieved when the levels of trust, social connectedness and common preferences are high. The analysis reported in this thesis were carried out as part of the Horizon 2020 project Contracts 2.0, which aimed to develop innovative contractual solutions that provide the right incentives for farmers and land managers to preserve and improve the production of environmental public goods.