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European Review of Agricultural Economics Advance Access originally published online on August 30, 2007
European Review of Agricultural Economics 2007 34(3):295-320; doi:10.1093/erae/jbm022
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© Oxford University Press and Foundation for the European Review of Agricultural Economics 2007; all rights reserved. For permissions, please email journals.permissions@oxfordjournals.org

Local compensation payments for agri-environmental externalities: a panel data analysis of bargaining outcomes

Franz Hackl, Martin Halla and Gerald J. Pruckner

Johannes Kepler University of Linz, Austria

Corresponding author: Gerald J. Pruckner, Department of Economics, Johannes Kepler University of Linz, Altenbergerstrasse 69, A-4040 Linz, Austria. E-mail: gerald.pruckner{at}jku.at

Received December 2005; Revision received June 2007. 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


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