The Role of Transaction Costs and Bargaining Power in Wildlife and Landscape Services Production: A Micro-Econometric Model for Dutch Dairy Farms

In this paper a theoretical and empirical model is developed for analysing the decisions of individual farmers whether or not to produce wildlife and landscape services, how much of these services to produce and form an environmental co-operative in order to reduce transaction costs or to build up bargaining power. The model is applied for Dutch dairy farmers as the main users of agricultural land in the Netherlands. Simulations show that the reduction of transaction costs makes it attractive for farmers to form an environmental cooperative in case of a fixed price for wildlife and landscape services. Therefore more wildlife and landscape services are produced and more farmers are involved compared to a situation with individual supply. If demand is no longer perfectly elastic an increase in wildlife and landscape services production leads to lower prices offsetting part of the production and profit increase caused by lower transaction costs. However, if the environmental co-operative acts like a monopolist its bargaining position leads to a decrease in the production of wildlife and landscape services and higher prices.