MECHANISM DESIGN FOR NUTRIENT TRADING UNDER ASYMMETRIC INFORMATION

The objective of this paper is to evaluate first- and second-best trading mechanisms for regulating point and nonpoint source phosphorus emissions. The trading mechanisms are differentiated on the degree to which regulators can observe abatement efforts. The deadweight losses attributable to informational asymmetries and those of the second-best mechanisms will provide regulators the shadow value of foregoing first-best measures.Environmental Economics and Policy,

Watershed Nutrient Trading Under Asymmetric Information

This study evaluates first- and second-best trading policies for regulating watershed phosphorus under asymmetric information. The trading policies are differentiated on the degree to which regulators observe point and nonpoint source abatement efforts. The efficiency losses attributable to these informational asymmetries and those of the second-best policies can be measured in social welfare, and provide regulators the shadow value of foregoing first-best measures. Given representative monitoring costs from national water monitoring programs, it is shown that under asymmetric information, the chosen second-best trading policies outperform first-best policies by 11% in the control of watershed nutrient pollution.Environmental Economics and Policy,

Participant Bidding Enhances Cost Effectiveness

A multitude of design decisions influence the performance of voluntary conservation programs. This Economic Brief is one of a set of five exploring the implications of decisions policymakers and program managers must make about who is eligible to receive payments, how much can be received, for what action, and the means by which applicants are selected. The particular issue examined here is the potential benefits of allowing farmers to "bid" for the activity they will undertake and the level of payment they would receive for it.Agricultural and Food Policy, Environmental Economics and Policy,

A Carrot-and-Stick Approach to Environmental Improvement: Marrying Agri-Environmental Payments and Water Quality Regulations

Agri-environmental programs, such as the Environmental Quality Incentives Program, provide payments to livestock and crop producers to generate broadly defined environmental benefits and to help them comply with federal water quality regulations, such as those that require manure nutrients generated on large animal feeding operations to be spread on cropland at no greater than agronomic rates. We couch these policy options in terms of agri-environmental "carrots" and regulatory "sticks," respectively. The U.S. agricultural sector is likely to respond to these policies in a variety of ways. Simulation analysis suggests that meeting nutrient standards would result in decreased levels of animal production, increased prices for livestock and poultry products, increased levels of crop production, and water quality improvements. However, estimated impacts are not homogeneous across regions. In regions with relatively less cropland per ton of manure produced, the impacts of these policies are more pronounced.Environmental Economics and Policy,

WHEN THE !%$? HITS THE LAND: IMPLICATIONS FOR US AGRICULTURE AND ENVIRONMENT WHEN LAND APPLICATION OF MANURE IS CONSTRAINED

Confined animal production in the U.S. and its associated discharge of manure nutrients into area waters is considered a leading contributor to current water quality impairments. A common option to mitigate these impairments is to limit land application of manure. This paper evaluates the implications of alternative land application constraints for U.S. agriculture and the environment at the regional and sector level. The results suggest that when these constraints are particularly binding, due to minimal acceptance of manure as a substitute for commercial fertilizer, potentially large and unanticipated changes in returns to agricultural production and water quality may occur. Furthermore, we find that some of the cost of meeting the land application constraints will be passed on to consumers through higher prices and to a portion of rural economies through lower production rates and labor expenditures.Environmental Economics and Policy, Livestock Production/Industries,

THE BIG PICTURE: PRODUCTION AND ENVIRONMENTAL IMPACTS OF REDUCED US OBESITY

This paper assesses how successfully reducing the incidence of overweight and obesity in the US to meet public health objectives might influence agricultural production. We also examine the consequent agri-environmental effects of the production changes. Our estimates show that a reduction in aggregate consumption by between 2 and 6 percent, associated with public health goals being met, would lead to reduced production of primary agricultural commodities, increased exports, and reduced discharge of agricultural pollutants. In both cases, neither the estimated changes in commodity production nor the subsequent environmental impacts would be uniform across the landscape. Results indicate that in value terms, the largest changes (either positive or negative) in agricultural producer net returns would occur in the Corn Belt and the Lake States; conversely, the largest impacts on consumer surplus would occur in the Northeast and Pacific regions.Health Economics and Policy,

NEW CONSERVATION INITIATIVES IN THE 2002 FARM BILL

The role of agri-environmental programs has taken on increased importance in the current Farm Bill debate with an eighty percent increase in Title II funding. However, little empirical evidence exists on the tradeoffs between economic costs and environmental benefits of new agri-environmental programs to assist policymakers in their designs. This paper illustrates some of the budgetary and environmental issues inherent in these initiatives. Several policy options are explored using an environmental simulation model and an economic spatial-equilibrium model for U.S. agriculture. Results indicate abatement levels of nitrogen and pesticides are higher under performance-based policies and those for wind erosion and soil productivity are higher under practice-based policies. Abatement of phosphorus discharge, soil erosion and carbon sequestration remains relatively constant regardless of policy type. A national performance-based conservation policy funded at the $1 billion level has the potential to improve the environmental performance of U.S. farmers by as much as ten percent.Agricultural and Food Policy, Land Economics/Use,

Flexible Conservation Measures on Working Land: What Challenges Lie Ahead?

From 1985 to 2002, most Federal conservation dollars going to farm operators have been to retire land from crop production. Yet most U.S. farmland (850 million acres) remains in active production. The Farm Security and Rural Investment (FSRI) Act of 2002 sharply increased conservation funding and earmarked most of the increase for working-land payment programs (WLPPs). The design and implementation of WLPPs will largely determine the extent to which environmental goals are achieved and whether they are cost effective. We simulate potential environmental gains as well as adjustments in agricultural production, price, and income associated with various WLPP features to illustrate tradeoffs arising from WLPP design and implementation. Competitive bidding with the use of environmental indices to rank producers for enrollment is most cost effective. Payments based on past conservation will help support farm incomes, but limit the amount of additional environmental benefit that can be generated under a fixed budget.Land Economics/Use,

Permanence of Carbon Sequestered in Forests under Uncertainty

In this paper we examine the issue of permanence in the context of sequestering carbon through afforestation. We develop a dynamic nested optimal control model of carbon sequestration associated with the decision to afforest a tract of land given there are uncertainties associated with fire and insect/disease hazards. Conceptually, these potential hazards are similar in that their occurrence at any time t is uncertain and landowners can take specific actions – although generally different actions - in any time period t to reduce the probability of sustaining losses related to them. The hazards differ, however, in that fire represents a large loss in carbon at a moment in time, while insect/disease infestations are more likely to be reflected in a period of significant slowing of the rate of carbon accumulation than was anticipated followed by a sustained period of slowly decreasing carbon losses. The nature of these losses will influence the design of incentives under GHG mitigation frameworks that require carbon losses to be replaced as well as the strategies farmers adopt to deal with the uncertainties associated with these events occurring.carbon sequestration, uncertainty, optimal control, hazard function, forestry, permanence, Environmental Economics and Policy, Land Economics/Use,

Greener Acres or Greener Waters? Potential U.S. Impacts of Agricultural Trade Liberalization

This paper examines the elimination of all agricultural policy distortions in all trading countries and agricultural production decisions in the United States, as well as subsequent environmental quality in the presence and absence of nondegradation environmental standards. The results suggest that trade liberalization has the potential to increase domestic production and boost agricultural returns by as much as 8.5 percent. Consumer surplus would likely fall, and the discharge of nutrients, sediment, and pesticides would likely increase. However, environmental policies can limit these adverse environmental impacts and mute the potential decrease in consumer surplus, while leaving increased returns to agricultural production.agriculture, trade reform, environment, nondegradation, Environmental Economics and Policy, International Relations/Trade,