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Abstract
Targeted environmental policies for farmlands may improve the cost-efficiency of conservation
programs if one can identify the farms that produce public goods, or environmental outputs, with
the least cost. We derive shadow values of producing crop diversity on conventional and organic
crop farms to examine their opportunity costs of conservation. Non-parametric distance functions
are estimated by applying data envelopment analysis to a sample of Finnish crop farms for the
period 1994 – 2002. Our results show that there is variation in the shadow values between farms
and the technologies adopted. The extent of cost heterogeneity and farms’ potential for
specialization in the production of environmental outputs determine whether voluntary programs
such as auctions for conservation payments are economically reasonable.