Which is the lower-cost conservation strategy: long- or short-term agreements?
2017
Hansen, LeRoy | Hellerstein, Daniel
Historically, long-term agreements offer an upfront payment as opposed to a series of annual payments. Past research suggests that public preferences for upfront payments are greater than the present-value sum of a series of annual payments. If this condition holds, then program costs can be lowered by offering upfront payments. The driving force behind this condition is that individuals’ have personal rates of discount (PRD) that exceed market discount rates. The objective of this analysis is to use behavior data to test whether landowners’ have PRDs that exceed market. We use contract data from three USDA wetland conservation strategies. Two of the strategies offer annual payments and one offers an upfront payment. This variation allows us to directly test the hypothesis that there is no difference between prds and the market rate. Our results lead us to reject this hypothesis.
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