Behavioural Microsimulation Modelling: Agri-Environmental Schemes

Abstract

Given the interaction between agriculture, as a major land use and the environment, there has been increasing concern about environmental outcomes and agriculture. One of the policy levers that has been used has been the development of voluntary agri-environmental schemes (AES), where financial incentives are provided for farmers to farm in environmentally sustainable ways. In this chapter, we develop a behavioural choice model to understand farmer behaviour in relation to scheme participation. Drawing upon the literature developed within the behavioural labour supply microsimulation literature, where actual choice information in relation to structural drivers such as income and labour, together with simulated counterfactual data, are combined in the estimation of a choice model that captures the behavioural parameters of a utility function. Also in this chapter, we utilise the income generation model described in Chapter 7 to simulate farm market income, costs, subsidies and labour for the counterfactual or non-chosen choice. So, for example, we observe the data for actual participants and so we simulate the characteristics for non-participation and vice versa for actual non-participants. These data are combined as choice specific attributes in the estimation of a utility function containing the preference parameters for the choice. The restricted model shows that Irish farmers behave rationally, maximising utility from consumption through farm income and AES payments. Results from the unrestricted model show that farmers’ utility-maximising behaviour with regard to the AES participation decision is complex, changing regionally and over time. Participation functions of viable and non-viable farmers differ in many ways.

Co-authored with Ger Johnston and Stephen Hynes.