Illiquid Capital: Are Conservation Easement Payments Reinvested in Farms?

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Agricultural conservation easements have positive externalities but few studies examine the supply-side. This paper explores whether easements may also overcome a credit-market failure, as banks may not be lending based on the full developed value of land. Original survey data test our research hypotheses and show profitable owners and nonoperators to be using easement payments to extract capital from their land by using the preservation programs as a bank. The results also show that the unprofitable owners and operators are reinvesting in their agricultural enterprises. Both results are consistent with an underlying credit-market failure, and the latter suggests that easements may provide indirect efficiency enhancement. The results suggest an integration of policies on agricultural finance and land preservation might lead to improved efficiency.

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