An Empirical Structural Model of Productivity and Conservation Reserve Program Participation

Abstract

The Conservation Reserve Program (CRP), which provides incentives for landowners to idle erodible and marginal farmland, faced new challenges as record-high commodity prices significantly affected landowners’ interests in the program in recent years. We develop and estimate an empirical structural model to examine the manner in which productivity, market conditions, and CRP payment affect landowners’ land use decisions. The model carefully controls for the endogeneity of CRP payment and landowners’ self-selection into the program. The parameter estimates are used to simulate how changes in agricultural prices and CRP payment influence program enrollment and cost across the Corn Belt states. (JEL O13, Q15)