ESS versus NVZ – The Cost-Effectiveness of Command-and-Control versus Agreement Based Policy Instruments

This study empirically investigates the cost-effectiveness of different agri-environmental policy instruments. We compare the Environment Stewardship Scheme (ESS) as an example for a management agreement type instrument, to the Nitrate Vulnerable Zones (NVZ) as an example for a command-and-control type instrument. Both instruments are currently applied in the UK. Based on a simple cost model considering also relevant transaction costs and risk we use different regression and resampling techniques to estimate the marginal effects of different factors with respect to the instruments‟ relative cost-effectiveness and to identify factors for cost variation over space and time. We control for the actual level of compliance by using compliance weighted average scheme cost ratios. The findings suggest that the ESS instrument has a higher cost-effectiveness whereas the NVZ instrument is more expensive on a general level. However, if the focus is on compliance weighted cost ratios, the picture changes somewhat. Further, we find a significant regional variation in the cost-effectiveness for both instruments as well as a significant variation over time.