Institutional design of agri-environmental contracts in the European Union: The role of trust and social capital

Abstract

Assessing potential uptake of agri-environmental schemes based on farm and farmer characteristics only results in an incomplete analysis because it neglects the effects of motivational issues of the institutional design of contracts, as set up by the government, and of social capital. In this paper we describe contract choice using a trivariate probit model and taking into account farm and farmer characteristics and motivational issues. Motivational issues in this study include the perception of institutional design, the use of extension services, trust in the government, and preferences for stable policies. Results show that besides farm and farmer characteristics these factors are important for the likelihood of enrolling in agri-environmental contracts. They do not influence every contract type in the same way and further decisions to conclude different contract types are connected. If farmers perceive the design of an agri-environmental scheme as weak or favour a stable policy they are less likely to conclude contracts for biodivorsity protection. Farmers who do not trust the government are less likely to conclude contracts for less intensive practices. Involvement in general networks increases the probability of contracting for wildlife and landscape management and less intensive practices whereas this factor is not important for biodiversity protection. The results suggest that taking into account motivational issues and differentiating towards different contract types can increase effectiveness and efficiency of agri-environmental schemes.