Testing for information asymmetries in voluntary conservation contracts

We use data from a Maryland farm survey and a multivariate switching regression model with endogenous switching to investigate the effects of information asymmetries on conservation cost sharing contracts. Our estimations indicate that the role that asymmetries of information play in the impact that cost-sharing programs have on conservation effort depends on the type of practice under analysis. After controlling for observables (including history of cost-share awarding), we found no evidence of detrimental effects from information asymmetries neither on the acreage under permanent vegetative cover nor on the level of use of conservation cropping practices. As a matter of fact, information asymmetries have no statistically significant impact on permanent vegetative cover, while their impact on conservation cropping is both positive and significant.