Farm choice between agri-environmental contracts in the European Union

The purpose of this paper is to analyse land allocation between competing agri-environmental contracts, taking into account institutional issues, the characteristics of the farm and farm household. Three types of agri-environmental contract are considered: a Biodiversity Protection Contract, a Landscape Management Contract and a Restriction on Intensive Practices Contract. The paper demonstrates that it is important to study the choices made between the different agri-environmental contracts. The reasons for this are that a unit of land can only be allocated to one contract (although the farm itself can choose to hold more than one contract) and the perceived relative marginal cost of a contract can change if the institutional setting, the farm household or the farm characteristics alter. The model uses a two-stage method. As a first stage, the probability of contract choice is determined. In the second stage these probabilities are linked to costs and the optimal contract choice is determined.