The Effect of Allowance Allocations on Cap-and-Trade System Performance

We examine an implication of the “Coase Theorem” which has had an important impact both on environmental economics and on public policy in the environmental domain. Under certain conditions, the market equilibrium in a cap-and-trade system will be cost-effective and independent of the initial allocation of tradable rights. That is, the overall cost of achieving a given aggregate emission reduction will be minimized, and the final allocation of permits will be independent of the initial allocation. We call this the independence property. This property is very important because it allows equity and efficiency concerns to be separated in a relatively straightforward manner. In particular, the property means that the government can establish the overall pollution-reduction goal for a cap-and-trade system by setting the cap, and leave it up to the legislature – such as the U.S. Congress – to construct a constituency in support of the program by allocating the allowances to various interests without affecting either the environmental performance of the system or its aggregate social costs. Our primary objective in this paper is to examine the conditions under which the independence property is likely to hold – both in theory and in practice. A number of factors can call the independence property into question theoretically, including market power, transaction costs, non-cost-minimizing behavior, and conditional allowance allocations. We find that, in practice, there is support for the independence property in some, but not all cap-and-trade applications.Cap-and-Trade System, Tradable Permits, Coase Theorem, Allowance Allocation

Economic impacts of climate change policy - A quantitative analysis

Global warming has received growing attention during the last decade. The accumulation of anthropogenic greenhouse gas (GHG) emissions in the atmosphere is likely to lead to significant climate changes. In order to avoid potentially larger adverse impacts, GHG emissions - most notably carbon dioxide (CO2) released from fossil fuel use - must be drastically reduced in the future. An economic assessment of climate change has to weigh the benefits from avoided undesirable consequences of global warming against the costs of greenhouse gas emission abatement. Given complete information, cost-benefit analysis could tell policymakers how much greenhouse gas emissions should be abated, when and by whom. However, neither costs nor benefits of GHG abatement are easy to quantify. In particular, there are large uncertainties in benefits of protecting against the negative effects of climate change. The chain of causality - from GHG emissions to ambient concentrations of greenhouse gases in the atmosphere to temperature increase to physical effects such as climatic and sea level changes - is highly complex. Hence, more attention is given to analyzing the costs rather than the benefits of climate change policy. Rational climate policy decision-making requires quantitative assessment, i.e. the use of analytical models that mimic the potential economic impacts of alternative emission reduction policies. A large number of models has been developed to investigate climate change policies that aim at achieving GHG emission trajectories suggested by natural science in a precautionary approach. In assessing alternative GHG abatement strategies the magnitude as well as the distribution of the associated adjustment costs is of major policy relevance. Because of the potentially large costs of ambitious climate change strategies, cost-effective implementation is essential in gaining broader acceptance. Besides efficiency in terms of overall abatement costs, equity in terms of a 'fair' distribution of these costs across countries, sectors or agents for alternative policy strategies is crucial. This thesis contains a selection of essays dealing with the quantitative economic impact analysis of climate change policy. It comprises detailed modeling of the economic adjustment to GHG emission constraints and provides valuable information to make rational policy choices. Different quantitative approaches are employed to warrant the appropriate analysis of selected policy aspects: computable general equilibrium (CGE) modeling, partial equilibrium modeling and econometrics. The thesis is organized in seven chapters. Chapter 2 briefly discusses central issues in the economics of climate change. It motivates CGE modeling as a powerful tool to assess these issues in a consistent economy-wide framework and demonstrates its usefulness along illustrative calculations of the potential economic consequences induced by exogenous emission reduction constraints. The following chapters substantiate specific problems of climate policy. This requires extensions of the core CGE model as well as the additional use of partial equilibrium and econometric approaches. Chapters 3 and 4 investigate how the implications of emission constraints change when switching from the conventional perfect competition paradigm to the more realistic assumption of imperfect competition on good and permit markets. Chapters 5 and 6 present alternative modeling approaches to joint implementation (JI), which involves cross-border investments by industrialized countries to meet part of their domestic emission reduction targets through abatement activities of developing countries. Chapters 7 and 8 address methodological challenges for the model-based assessment of adjustment costs to emission regulation: the choice of costing concepts and the appropriate representation of technological change. Each chapter of the thesis is an independent piece of work and can be read separately. The different chapters contain an introduction that motivates the issues under investigation, relates them to the literature, and highlights the contributions made

Review of environmental, economic and policy aspects of biofuels

The world is witnessing a sudden growth in production of biofuels, especially those suited for replacing oil like ethanol and biodiesel. This paper synthesizes what the environmental, economic, and policy literature predicts about the possible effects of these types of biofuels. Another motivation is to identify gaps in understanding and recommend areas for future work. The analysis finds three key conclusions. First, the current generation of biofuels, which is derived from food crops, is intensive in land, water, energy, and chemical inputs. Second, the environmental literature is dominated by a discussion of net carbon offset and net energy gain, while indicators relating to impact on human health, soil quality, biodiversity, water depletion, etc., have received much less attention. Third, there is a fast expanding economic and policy literature that analyzes the various effects of biofuels from both micro and macro perspectives, but there are several gaps. A bewildering array of policies - including energy, transportation, agricultural, trade, and environmental policies - is influencing the evolution of biofuels. But the policies and the level of subsidies do not reflect the marginal impact on welfare or the environment. In summary, all biofuels are not created equal. They exhibit considerable spatial and temporal heterogeneity in production. The impact of biofuels will also be heterogeneous, creating winners and losers. The findings of the paper suggest the importance of the role biomass plays in rural areas of developing countries. Furthermore, the use of biomass for producing fuel for cars can affect access to energy and fodder and not just access to food.Energy Production and Transportation,Environmental Economics&Policies,RenewableEnergy,Transport Economics Policy&Planning,Energy and Environment

Economic analysis of determinants of grain storage practices and implications on storage losses and household food security in Makoni and Shamva Districts in Zimbabwe.

Doctor of Philosophy in Agricultural Economics. University of KwaZulu-Natal, Pietermaritzburg, 2017.Despite notable advances in grain storage practices, many smallholder farmers in southern Africa still rely on traditional practices for storing staple crops such as maize. Traditional storage practices do not offer adequate protection of grain against pests such as the Larger Grain Borer (LGB) hence significant post-harvest losses (PHL) are recorded in storage. More so, little attention has been given to the study of the economics of PHL and storage technology, particularly in the smallholder farming areas where issues of food security and poverty are concentrated. This study meant to compare the economic viability of traditional and improved storage technologies, examine the factors that influence smallholder farmers‟ choice of storage technologies, analyse determinants of willingness to pay for a metal silo, and determine the effects of storage technologies on household hunger gap and market participation in Zimbabwe. A structured questionnaire was used to collect data from 417 households chosen using the multi-stage sampling method in Makoni and Shamva Districts. Various econometric methods such as cost-benefit analysis, multinomial logit, logit, ordered probit and truncated regression models were used to analyse the data. Storing maize grain using hermetic technologies was found to be most profitable when compared to untreated and ACTELLIC dust (pirimiphos-methyl) treated polypropylene bags. The benefit-cost (B/C) ratios were also greater for hermetic technologies. Comparing the two hermetic technologies, the super grain bags were found to be more profitable than the metal silo. Nevertheless, both technologies were superior to the smallholder farmers‟ storage technology of treated bags. Sensitivity analysis results, on the other hand, revealed that both hermetic storage technologies are sensitive to reduction in investment period. This is a result of the high investment costs that are associated with the technologies. The results, however, indicated that super grain bags are more suitable for smallholder farmers who are resource limited and cannot invest in a silo since super grain bags have a higher financial return than a metal silo. On the other hand, metal silos are the most suitable and robust storage technology for smallholder farmers who have long-term storage investment plans. It should, however, be noted that to create and keep gas-tight conditions in metal silos or super grain bags is a demanding and expensive task that requires pronounced scientific and technical skills. Dissemination of the technology should thus encompass farmer and artisan training package on proper handling and management of the hermetic technologies to reap maximum benefits from the inert atmospheres created. Provision of credit may be required to allow farmers to meet the high initial investment costs. Household head‟s age, education years, marital status, total grain stored, the value of non-food crops, business and wages income, and access to extension services were found to have a diverse influence on the choice of grain storage technologies. Older households had higher chances of using the insecticide storage technology indicating that farming experience influences the choice of grain storage technologies. Therefore, the government and development agents should target older household heads for promotion and dissemination of storage technologies. Marital status also increased the chance of using the insecticide storage technology suggesting that married household heads are less risk-averse. Therefore, government and storage technology development agents should target married households for dissemination, without marginalizing unmarried household heads. Furthermore, the total grain stored influenced smallholder farmers to use the insecticide storage technology versus the no insecticide technology. Thus, policies that promote agricultural production will enhance the use of improved storage technologies among smallholder farmers. Hence, the government should support agricultural production activities of smallholder farmers. Thus, policies that promote agricultural production will enhance the use of improved storage technologies among smallholder farmers. Hence, the government should support agricultural production activities of smallholder farmers. Households with a higher value of non-food crops showed higher chances of using the insecticide storage technology relative to the no insecticide technology. Hence, development agents and the government should develop programs that support the production of non-food crops in smallholder areas without side-lining maize production. Results showed that better-educated smallholder farmers had higher chances of using the insecticide storage technology. The government should develop adult learning programs in the areas to increase access of farmers to education. However, smallholder farmers with income from business and wage activities showed less likelihood to use the insecticide storage technology. This implies that such smallholder farmers have fewer chances of storing grain hence are more likely not to choose the insecticide storage technology. Although access to extension had a negative influence on the choice of storage technology, it is important that government develops specific extension training programs on storage technology particularly the use of insecticide storage so as to equip farmers with proper storage skills and information. In terms of farmers‟ willingness to pay for a metal silo, the results found that the household head‟s age, marital status, non-food crop quantity, equipment value, vegetable income, storage loss and informal activity participation were the key determinants of willingness to pay for a one-tonne metal silo storage technology in Zimbabwe. The results revealed that married respondents and young farmers are more ready to pay for metal silos than their counterparts. While it is recommended that development agents promoting the metal silo technology should target these households for a sustainable approach, care should be taken not to marginalize their counterparts. All the income variables except equipment value showed a positive influence on WTP for a metal silo. Increasing household‟s income will help to ease the financial constraints that often impede technology investment among smallholder farmers. Therefore, policies that encourage diversification of agriculture and also provision of credit are recommended in order to increase WTP for a metal silo. The amount of grain lost in storage had a positive influence on farmers‟ WTP for a metal silo. This suggests that current storage practices are not effective against storage losses and the metal silo can be an alternative effective storage to curb storage losses and hence improve their food security and livelihoods. The study results revealed that storage practices had significant effects on both maize marketing behaviour and hunger gap of smallholder farmers. The use of insecticide storage increased the chances of farmers becoming net sellers of maize. Using insecticide storage reduces the amount of grain that is lost in storage hence farmers are able to preserve the amount of grain available for consumption and also for sale. This implies that safe storage of maize promotes smallholder farmers‟ net maize selling behaviour thus reducing poverty and also contributing to improved food security. Investment in safe grain storage technologies is thus a fundamental key policy issue in developing countries and as such government should design storage policies that encourage dissemination and promotion of safe grain storage technologies at the household level. Household head‟s gender, marital status, quantity harvested, market location, farming systems and district location were other factors that influenced maize marketing decisions of smallholder farmers in Zimbabwe. Moreover, results showed that the majority of the households experienced hunger gap. On average, households that experienced it had a hunger gap intensity of 4.7 months. This means that food insecurity is an issue of concern among smallholder farmers. Policymakers should come up with effective measures to safeguard lives of people either by boosting production or promoting safe storage of maize grain. Several household socio-economic characteristics such as age, household size, gender, marital status, location, education years, and being an A1 model or old resettlement farmer and no treatment storage significantly influence the occurrence of household hunger gap. Farmers who used no treatment on stored grain had better chances of not incurring hunger gap in the study areas. Hence, there is need to investigate the location-specific characteristics of smallholder farmers. The government may also develop programs targeted to improve post-harvest knowledge and skills of smallholder farmers. Smallholder farmers record significant storage losses which lead to the hunger gap. Protecting grain crops is thus an important step towards ensuring food security. Larger household size increased chances of experiencing hunger gap, which suggests the need to implement effective family planning methods to keep the family sizes small. Development agents should provide effective family planning education and training to farmers in the rural areas. Farmers who had larger sizes of cultivated land showed lower chances of experiencing hunger gap than their counterparts. Therefore increasing smallholder farmers‟ access to land will alleviate the problem of hunger gap and food insecurity. Households with a higher level of education had lower chances of incurring hunger gap, therefore, the government should develop adult learning programs to increase literacy levels of households in the area and hence reduce hunger gap occurrence. It was also observed that hunger gap differs by location, farming system, and storage practices. Farmers in Shamva district showed higher chances of experiencing a hunger gap than those in Makoni district, while farmers in the A1 model and old resettlement schemes had better chances of incurring no hunger gap. These farmers have better access to land, and other productive resources thus lower chances of incurring hunger gap. Hence, government supported input schemes should target areas where farmers have less access to inputs so as to improve productivity. On the other hand, the quantity of grain harvested, total grain stored, income from business and wages and land size had a negative effect on hunger gap intensity while hunger gap intensity increased if the household head was married and no insecticide storage technology was used to store maize grain. To sum up, the study, recommends that government should develop policies that encourage farmers to invest in improved storage technologies such as the hermetic metal silo, and also to provide credit to farmers to enhance adoption and dissemination of new improved storage technologies. The study further recommends that government should develop effective extension programs tailor-made to increase and improve smallholder farmers' post-harvest management knowledge and skills, respectively

Smallholder commercialization: processes, determinants and impact

This paper reviews the literature on smallholder commercialization. It explores the conceptual developments in smallholder commercialization, methodological advancements in measuring the degree of agricultural commercialization at household level, and the impacts of commercialization on different socio-conomic groups. The paper also investigates policy recommendations made by different authors aimed at facilitating the smooth process of transforming smallholder agriculture from subsistence system to a fully commercialized farming. Based on the review, the paper throws light on conceptual and methodological gaps in relation to smallholder commercialization, and finally, draws general conclusions and directions for future research

Market participation and welfare of smallholder farmers in the Eastern Cape Province South Africa

The low market participation of smallholder farmers in markets has received enormous attention from scholars, both in the country and the Eastern Cape Province. However, it is not clear how low their market participation is including its implications on farmer’s welfare. The purpose of the study was to determine the extent to which smallholder farmers in the homelands of the Eastern Cape participate in output markets and assess how their participation in markets has affected wellbeing of their households. This information will have important practical implications for policy regarding appropriate pathways for poverty alleviation and livelihoods improvements in the rural areas of the Eastern Cape Province. Three irrigation schemes; Qamata, Zanyokwe and Tyefu irrigation schemes were selected for this study. A sample of 210 smallholder irrigators were interviewed by means of a close-ended questionnaire. The data were analysed by means of descriptive statistical tools, the multiple-level choice models and the Propensity Score Matching (PSM) technique. SPSS and STATA computer programmes were used to carry out all the estimations. The analysis established that, although agriculture is the primary activity for rural livelihoods, it is not the main contributor to family income. Rather, remittances and social grants were the dominant sources of household income in the Qamata, Zanyokwe and Tyefu areas. From the standpoint of market, maize and potatoes are the most popular crops, but potatoes dominate the market. This result confirms that maize is the staple crop and therefore mostly grown for home consumption while production of potatoes is market-oriented. The Market Participation Index (MPI) revealed that farmers sell at least 55 percent of their farm produce, implying that farmers have made some transition from subsistence to semi-commercial farming. However, farmers’ priority still remains food self-sufficiency and market participation only takes place after satisfying their home food needs. The results revealed that the significant factors influencing the farmers’ decisions and their extent of participation in output markets were the age, gender, marital status of the household head, primary occupation of household head, size of farm cultivated, government financial support, access to extension services and farmer’s membership of cooperatives. Concerning the impact of output market participation on welfare of smallholders, the Average Treatment on the Treated (ATT) as the measure of change revealed that participation in output markets has a positive impact on welfare of the smallholder farmers through increased incomes. Farmers who participated in output market were at least R838.44 better off than those who did not participate in markets although social grants and remittances made significantly higher contribution to household welfare. The study suggests that despite some improvements in income of market participants, the standards of living of the rural households are still far from what would be considered optimal. Crop farming evidently contributes less than desired, hence the persistence of the widespread poverty. It is urgent to focus interventions on improving agricultural productivity while widening strategies for improving rural livelihoods beyond agriculture to diversify the choices open to rural dwellers.Thesis (PhD) -- Faculty of Science and Agriculture, 202

Market participation and welfare of smallholder farmers in the Eastern Cape Province South Africa

The low market participation of smallholder farmers in markets has received enormous attention from scholars, both in the country and the Eastern Cape Province. However, it is not clear how low their market participation is including its implications on farmer’s welfare. The purpose of the study was to determine the extent to which smallholder farmers in the homelands of the Eastern Cape participate in output markets and assess how their participation in markets has affected wellbeing of their households. This information will have important practical implications for policy regarding appropriate pathways for poverty alleviation and livelihoods improvements in the rural areas of the Eastern Cape Province. Three irrigation schemes; Qamata, Zanyokwe and Tyefu irrigation schemes were selected for this study. A sample of 210 smallholder irrigators were interviewed by means of a close-ended questionnaire. The data were analysed by means of descriptive statistical tools, the multiple-level choice models and the Propensity Score Matching (PSM) technique. SPSS and STATA computer programmes were used to carry out all the estimations. The analysis established that, although agriculture is the primary activity for rural livelihoods, it is not the main contributor to family income. Rather, remittances and social grants were the dominant sources of household income in the Qamata, Zanyokwe and Tyefu areas. From the standpoint of market, maize and potatoes are the most popular crops, but potatoes dominate the market. This result confirms that maize is the staple crop and therefore mostly grown for home consumption while production of potatoes is market-oriented. The Market Participation Index (MPI) revealed that farmers sell at least 55 percent of their farm produce, implying that farmers have made some transition from subsistence to semi-commercial farming. However, farmers’ priority still remains food self-sufficiency and market participation only takes place after satisfying their home food needs. The results revealed that the significant factors influencing the farmers’ decisions and their extent of participation in output markets were the age, gender, marital status of the household head, primary occupation of household head, size of farm cultivated, government financial support, access to extension services and farmer’s membership of cooperatives. Concerning the impact of output market participation on welfare of smallholders, the Average Treatment on the Treated (ATT) as the measure of change revealed that participation in output markets has a positive impact on welfare of the smallholder farmers through increased incomes. Farmers who participated in output market were at least R838.44 better off than those who did not participate in markets although social grants and remittances made significantly higher contribution to household welfare. The study suggests that despite some improvements in income of market participants, the standards of living of the rural households are still far from what would be considered optimal. Crop farming evidently contributes less than desired, hence the persistence of the widespread poverty. It is urgent to focus interventions on improving agricultural productivity while widening strategies for improving rural livelihoods beyond agriculture to diversify the choices open to rural dwellers.Thesis (PhD) -- Faculty of Science and Agriculture, 202

Essays on Malawian agriculture: Micro-level welfare impacts of agricultural productivity; profitability of fertilizer use; and targeting of fertilizer subsidy programs

This dissertation comprises of three essays that address different aspects of agriculture in Malawi using a two-wave panel data collected by the National Statistical Office of Malawi with support from the World Bank Living Standards Measurement Study – Integrated Surveys on Agriculture (LSMS-ISA) program. Each essay stands alone as an independent study because of differences in research questions and the methodologies used in addressing the questions. The first essay analyzes the micro-level welfare impacts of agricultural productivity. Welfare is measured by various dimensions of poverty and food insecurity; and agricultural productivity is measured by maize yield and value of crop output per hectare. Depending on the measure of welfare, the impact of agricultural productivity was estimated with a household fixed effects estimator, a two-part estimator or a correlated-random effects ordered probit estimator. The results indicate that increasing agricultural productivity has the expected statistically significant welfare improving effect, but the magnitude of the effect is small given the attention that agriculture usually receives. Efforts to effectively improve the welfare of rural agricultural households should therefore go beyond increasing agricultural productivity. The second essay estimates the profitability of inorganic fertilizer use in maize production using fixed effects and multilevel models. The study finds that fertilizer use is generally unprofitable at prevailing market conditions when one assumes farmers incur positive transaction costs in the use of fertilizer. The main factor that drives low fertilizer profitability is low nitrogen use efficiency (NUE) which is estimated to range from 9.24kg to 12.09 kg on average, depending on the model specification. In order for fertilizer use to be profitable on average, the NUE would have to increase by at least 137% if maize output is valued at the farm gate price and by 50% if maize is valued at the lean season market price. Essay three provides guidance for the targeting of Malawi’s Farm Input Subsidy Program (FISP) by estimating the difference in inorganic fertilizer use efficiency and crowing out of commercial fertilizer by subsidized fertilizer between poor and non-poor households. The difference in inorganic fertilizer use efficiency is estimated with a multilevel model of maize yield while the difference in crowding out is estimated with a double hurdle model of demand for commercial, inorganic fertilizer. The results indicate that non-poor farmers are significantly more efficient in the use of inorganic fertilizer, but have significantly higher levels of crowding out, compared to poor. This suggests that there is a trade-off between targeting the non-poor farmers and targeting poor farmers. Further analysis of the trade-off however indicates that targeting non-poor farmers instead of poor farmers, after accounting for the difference in crowding out, would result in an overall yield gain of 3.14 - 4.33kg per kilogram of nitrogen. Therefore the food security objective of Malawi’s farm input subsidy program would be better served if non-poor farmers are targeted instead of poor farmers

Development Policies and Policy Processes in Africa: Modeling and Evaluation

economics; quantitative policy evaluation; Comprehensive Africa Agriculture Development Programme (CAADP); povert

An economic analysis of the consumption behavior of farm-households in Zambia: an application of the firm-household model

This paper examines the quantitative significance and policy implications of the integration of household production and consumption decisions. A recursive form of the integrated production-consumption model is estimated for a semi-commercial household in Zambia using primary cross-sectional data. The production side of the model is estimated by linear programming techniques and the consumption side is estimated, econometrically, by the linear expenditure system (LES) of estimating demand functions and labor supply. The integrated model is used to analyze the impact of agricultural price intervention on a small farm-household in Zambia