Agri-environment contract adoption under fixed and variable compliance costs

Abstract : This paper analyses the heterogeneity of compliance costs on farmers' choices to participate in agri-environment schemes. The theoretical distinction between fixed and variable costs is used to explain why factors that determine participation may differ from those which determine how much land participants enrol in a scheme. The level of fixed costs may explain why the smallest farms tend to be least likely to participate in such schemes. The empirical analysis presented in the paper compares models estimated with and without the hypothesis of negligible fixed costs. It also discusses the situation where the nature of costs can be identified and isolated. The results show that in the presence of fixed compliance costs, fixed transaction costs are a significant contracting barrier for smallest farms.