Targeting Tools for the Purchase of Environmental Amenities

Use of suboptimal targeting tools to acquire environmental benefits is more the norm than the exception. We analyze how the joint spatial distribution of costs and environmental benefits affect efficiency losses from following targeting rules based on cost or benefits, rather than based on the benefit to cost ratio. Using analytical and numerical models, we demonstrate that the relative variability of costs and benefits and the correlation between the two are primary determinants of efficiency losses. We apply our framework to renewal of Conservation Reserve Program contracts and estimate how well alternative targeting tools obtain environmental benefits under reduced budgets. (JEL Q21)