The collective provision of environmental goods: a discussion of contractual issues

Abstract

Although many species have a larger range than the average sized farm, most agri-environment schemes (AES) involve contracts with individual land managers. However, in the Netherlands ‘collective contracts’ allow neighbouring land managers to co-ordinate environmental management at the landscape rather than the farm-scale. Findings from a study of Dutch Environmental Co-operatives (ECs) are used to discuss how collective contracts for environmental goods affect the following contractual issues associated with AES: transaction costs, asymmetry of information, the ‘hold-up’, ‘end-of-contract’ and ‘assurance’ problems and incomplete contracts. As a prerequisite for effective collective contracts requires land managers holding communal aims and interests, the techniques used by ECs to form like-minded groups are also reviewed. Government support for collective contracts can be justified because they: (1) reduce transaction costs; (2) improve ecological effectiveness; and (3) increase the policy options available. Government support for ECs can be justified (1) as compensation to members for the additional costs they incur co-ordinating group actions; (2) to assist collectives buy-in expert advice; and (3) because they increase participation rates by (a) helping counter the ‘hold-up’, ‘assurance’ and ‘incomplete contract’ problems, and (b) by framing decisions in ways that shift attitudes, values and aspirations among members.

Keywords:

• co-operatives
• environmental policy
• management
• market failure
• public goods
• landscape-scale

Acknowledgements

I am grateful to academics at the University of Wageningen for giving up their time to discuss issues related to the work and development of ECs. The contribution of Professor van der Ploeg and Dr Polman was particularly valuable.

Notes

1. In January 2005 the Environmental Stewardship Scheme (ESS) introduced financial incentives for group applications for one Higher Level Stewardship management option. Option HR8 is designed to protect resources that typically cover more than one land manager's domain, for example, inter-tidal flood management, wetland management and “landscapes with extensive archaeological or historic features” (DEFRA 2005, p. 108). These payments are designed to “contribute towards the cost of facilitating communal agreements” (DEFRA 2005, p. 108). However, as of April 2008 there were only 23 agreements under this option, covering 23,000 or so hectares (Data supplied from Natural England Genesis Data System, personal communication).

2. I am indebted to a referee for bringing this distinction to my attention. However this paper discusses contracts between government and groups of land managers, and contractual issues will be the same regardless of whether the land managers form informal groups or are members of formal ECs.

3. Straatsbosbeheer is the Dutch National Forestry Service. It has responsibility for environmental conservation over a large part of the Netherlands.

4. Further details of the sampling methodology, management structure and collective activities of these ECs are reported in Franks and McGloin (2006).

5. Most of these papers cover more than their principal theme.

6. More formally, transaction costs can be defined as “the costs of determining, capturing and retaining the attributes of an asset” (Polman and Slangen 2002, p. 71).

7. Land managers may of course belong to other collective organisations whose purpose is not related to nature conservation, such as a milk selling group and an input buying group.

8. Brotherton (1989) classifies the participation decision into ‘scheme factors’ (i.e. policy design, eligibility, area of farm that must be entered, etc) and ‘farmer factors’ (e.g. attitudes to the environment, costs and returns for undertaking the conservation management, the nature of the management prescriptions (and whether in their view they will affect the desired outcomes), acceptability of the procedures involved, and the costs of entry compared to the likelihood of being accepted onto the scheme).

9. Embodied cultural capital “is capital in its fundamental state as it involves assimilation (self-improvement) on the part of the individual” (Burton et al. 2008, p. 19).