1. Payments for Ecosystem Services Programs and Climate Change Adaptation in Agriculture
Abstract. Payments for ecosystem services (PES) programs can enhance resilience to extreme weather events by establishing natural infrastructure. I investigate the effectiveness of the Conservation Reserve Enhancement Program (CREP) in the United States in mitigating flooded crop losses through the restoration of riparian buffers and wetlands. By leveraging variation in the timing of the program’s introduction across counties, I find that CREP reduced the number of flooded crop acres by 39 percent and the extent of damage on those acres by 26 percent during the initial 11 years of program implementation. The flood mitigation benefits of CREP also generated financial spillover effects on the federal crop insurance program, saving $94 million in indemnity payouts that would have otherwise been paid to insured farmers. Two-thirds of these benefits resulted from reduced flood damage on cropland in production, while the remaining benefits were attributed to the removal of at-risk cropland from production. The magnitude of benefits varied spatially and temporally depending on the duration of program availability, the extent of program participation, and the adoption of alternative risk management strategies. Overall, these findings underscore the critical role of PES programs in facilitating nature-based solutions for climate change adaptation.
2. Payments and Penalties in Ecosystem Services Programs (with Erik Lichtenberg and David Newburn)
Abstract. Payment for ecosystem services (PES) program contracts include penalties for non-performance to ensure that these programs receive the environmental benefits they have been paying for. The standard penalty structure in PES programs requires participants to pay back all program payments received if the contract is terminated before the end of the contract lifetime. We derive the optimal non-completion penalty structure, which decouples the penalty from payments received. In contrast to the backward-looking standard penalty, the optimal penalty is forward-looking and equals the principal’s net future environmental benefits lost due to contract non-completion. The optimal penalty thus falls over the life of the contract, in contrast to the standard penalty, which rises over the life of the contract. A numerical policy simulation with heterogeneous agents based on features in federal agricultural conservation programs in the United States suggests that the optimal penalty structure can increase realized net environmental benefits significantly. Our results suggest that performance of most kinds of PES programs can be enhanced by decoupling non-completion penalties from payments and by adjusting how penalties vary over contract lifetimes.
3. Penalties, Targeting, and Performance in Payment for Ecosystem Services Programs (with Erik Lichtenberg and David Newburn)
Abstract. Studies of efficient selection of heterogeneous projects in payments for ecosystem services (PES) programs often recommend ranking those projects based on benefit-cost ratio criteria to maximize net environmental benefits. These analyses assume perfect completion of the selected project contracts, even though projects are conducted under long-term contracts that are sometimes terminated before their expiration dates. This paper proposes a theoretical model for adjusting benefit-cost ratio criteria to account for the possibility of premature termination of funded projects and investigates how that adjustment affects project rankings. A numerical policy simulation using features of the Conservation Reserve Enhance Program in the United States shows that project selection using the modified benefit-to-cost ratios reduces rates of contract early termination and increases net environmental benefits. These improvements generally become more substantial with greater program budgets and optimized structure of penalties for early termination. Our analysis indicates that refining project selection criteria to account for implementation frictions can improve performance of PES programs globally.
4. Coastal Resilience: Adapting Land Use to Sea-level Rise in the Chesapeake Bay Region (with Rebecca Epanchin-Niell, David Newburn, and Alexandra Thompson)
Manuscript in preparation
5. Carbon Trading Programs for Afforestation: Interactions with Federal Agricultural Conservation Programs (with Erik Lichtenberg, David Newburn, Haoluan Wang, and Derek Wietelman)
Manuscript in preparation
6. Pre-Doctoral Publication: Kim, Y., and S. Dharmasena. 2018. “Price discovery and integration in US pecan markets.” Journal of Food Distribution Research, 49(856-2018-3108), 39-47.
Abstract. The United States is a major supplier in the world pecan market. Using grower-level pecan price data from the 2005–2016 seasons, we estimate pecan market integration patterns among Texas, Oklahoma, Georgia, and Louisiana using causality structures identified through cutting-edge machine-learning methods. Current pecan price received by growers in Texas is a direct cause of those in Oklahoma, Georgia, and Louisiana. Past-period grower-level pecan price in Georgia either directly or indirectly influences the current price in other states. These findings are useful for businesses and the government in order to price and promote marketing of pecan.