On Self Selection in PES Schemes

This paper investigates participation by farmers in the UK Environmental Stewardship Schemes and how decisions to join the scheme are related to land productivity levels on the one hand and ecological conservation on the other. In particular the paper will explore the extent to which the self selection of farmers onto the scheme influences likely scheme performance. The first part of the paper analyses a theoretical model for the provision of ecological services where an uninformed government agency offers to contracts to well-informed farmers. The results of this analysis indicate the extent to which self selection by farmers can impair the efficiency of PES schemes and point to specific strategies that might be used by a government agency to mitigate these effects. These results are used to motivate the empirical analysis of a sample of participants in the UK’s Environmental Stewardship Schemes (ESS). We use a comprehensive dataset for more than 10,000 ESS agreements over different years to estimate different regression models. The results of this preliminary analysis can inform policy makers on a more adequate design of conservation schemes with respect to positive and/or negative effects of self-selection.