Local Compensation Payments for Agri-Environmental Externalities: A Panel Data Analysis of Bargaining Outcomes

Abstract

We analyse local compensation payments made to farmers for providing landscape amenities in Alpine tourist communities. These payments result from political bargaining at the municipal level. Panel data estimation shows that the probability of introducing compensation payments depends positively on the benefits of landscape amenities. Although no impact of service provision cost is found, transaction costs at different levels of the bargaining process reduce the probability of payments. Compensation payments mainly occur in communities where the provision of agricultural landscape services is perceived as relatively low and the diversity of the countryside seems to be endangered. We argue that municipal compensation payments are an important supplement to national and European Union policy measures in support of less-favoured areas.

Keywords: public externalities, multifunctionality of agriculture, landscape-enhancing agricultural services, local compensation payments, municipal bargaining

JEL Classification: Q1, Q26, D62