ABSTRACT
The decision of what, if any, farmland to enroll in the Conservation Reserve Program (CRP) is important to farmers. The CRP is a rental payment and cost share program offered through the US Department of Agriculture (USDA) and is administered by the Farm Service Agency to compensate farmers for removing land from production. Eligible land for CRP enrollment includes cropland, including field margins, which have been planted in 4 of the past 6 years, as well as certain marginal pastureland. The benefits provided by CRP include reduced erosion, improved environmental well-being, and wildlife preservation. These attributes are examples of what economists would call market failures in that they represent benefits that are not reflected in the price of agricultural commodities. In other words, the free market does not generally pay farmers for positive externalities such as environmental improvements. As such, there is a market failure that can be rectified through CRP wherein society (the government) pays farmers for enhanced environmental stewardship. Land enrolled in CRP provides farmers with economic incentive and a potential for greater profitability than they may have if they were to produce crops in these areas.
