Comparison of Conservation Incentives under Long-Run Yield Uncertainty and Farmer Risk Aversion

Consumers and policymakers are increasingly concerned with environmental sustainability in food production. Yet farm-level adoption of many conservation practices has stalled. Existing incentives for practice adoption increase farmers’ expected net benefits from sustainable practices, but do not help manage associated risks which may be critical to risk-averse farmers. We build a model to characterize practice adoption by risk-averse farmers given practice-driven, long-run yield dynamics under various incentives, including price premiums, lump-sum subsidies, and green insurance. We find rich scale and compositional effects that differ across incentives and that green insurance is significantly more cost-effective under plausible conditions