Indicator-based agri-environmental payments: A payment-by-result model for public goods with a Swedish application

Biodiversity, cultural heritage, and scenery are major public goods produced in the agricultural landscape. Theoretically, Indicator-based Agri-Environmental Payments have the properties of providing socially efficient production. A system of seven composite state indicators, expressing the public goods of the respective fields or field elements, was developed and tested to assess if the model worked in practical policy implementation. The evaluation indicated a more efficient resource allocation, better dynamic incentives and lower transaction costs, compared to the current Swedish payment programs. A disadvantage is that such value-differentiated payments do not comply with tailoring and with present WTO-or CAP-regulations of cost-based payments. (C) 2012 Elsevier Ltd. All rights reserved.