Private provision of environmental services and transaction costs: agro-environmental contracts in France
Résumé
Since the 1999-reform of the Common Agricultural Policy, the agro-environmental contract has become the main instrument used in the European Union to encourage farmers to produce environmental goods. This is a five-year contract between the State and the farmer who benefits a compensation to comply with given environmental friendly practices. Environmental outcomes highly depend on farmers’ participation. Since it remains low, it is crucial to identify the driving factors of farmer’s behavior with respect to agro-environmental contracts. Among other factors, there is empirical and theoretical evidence that transaction costs have a significant role. While public transaction costs have been considered in the literature dealing with agro-environmental contracts, private ones did not. This paper addresses this issue by assessing the importance of private transaction costs in the decision to enroll such contracts. Econometric modeling is used to identify the most significant factors of transaction costs that affect this decision. The empirical analysis is based on a sample of 328 French farmers and support the importance of transaction costs. Indeed, results show that uncertainty, bounded rationality, the governance structure and the similarity of transactions, which are acknowledged as determinants of transaction costs, impact significantly on farmers’ choice.