A Theoretical and Empirical Analysis of Conservation Reserve Program Participation under Uncertainty

This paper develops theoretical and empirical models to understand how farmers formulate their participation strategies when deciding to enroll in the Conservation Reserve Program (CRP) under uncertainty. A theoretical model is employed to obtain the impacts of various factors on the optimal bidding strategies. A selectivity-based econometric model is then used to estimate the probability of enrollment and determinants of rental payments. The theoretical results indicate that the optimal bid is positively related to the expected farming income and environmental benefit scores, and it is negatively related to the degree of risk aversion and the variability of returns. The econometric model shows that land benefits, land attributes, farmer characteristics, and variability of climate variables impact the enrollment probabilities and rental rates received. These results have important policy implications for the design and implementation of conservation programs