Subsidies! The Other Incentive-Based Instrument: The Case of the Conservation Reserve Program

Hongli Feng, Catherine L. Kling, Lyubov A. Kurkalova, Silvia Secchi
October 2003  [03-WP 345]

In this paper, we examine command-and-control (CAC) policies and market-based instruments (MBI) in the context of the Conservation Reserve Program (CRP). The CRP, an MBI in the form of subsidies, is by far the largest agro-environmental policy implemented to date. We compare the environmental performance of the CRP as implemented to a few counterfactual CAC polices using EPIC (Environmental Policy Integrated Climate), a bio-physical simulation model. In the context of multiple environmental indicators, no policy alternative emerges as a clear winner. The importance of the choice and design of CAC policies is emphasized.

Keywords: command-and-control policy, Conservation Reserve Program, market-based instrument.

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