Is organic farming inefficient, or are indicators of economic performance of agriculture incomplete?

Organic farming is expected to alleviate the environmental burden of agriculture, since it rules out the use of chemicals such as synthetic fertilizers, pesticides, herbicides. However, organic farming technology may turn out to be less efficient when evaluated by conventional productivity measures that are less informative regarding environmental efficiency. We derive a framework for a combination of more comprehensive indicators reflecting whether organic farming increases sustainability in agriculture and how much of the total agricultural value added is produced at the expense of environmental deterioration. We show that it is important to separate flow and stock effects of pollution so that aggregate measurement is consistent with conventional national accounting. Shadow pricing of undesirable output and policy implications are discussed. For adoption of a technology and allocative efficiency in the agricultural sector, economic policy instruments should be redesigned and proper incentives through prices should be used

What price recreation in Finland? – A contingent valuation study of non-market benefits of public outdoor recreation areas

Basic services in Finnish national parks and state-owned recreation areas have traditionally been publicly financed and thus free of charge for users. Since the benefits of public recreation are not captured by market demand, government spending on recreation services must be motivated in some other way. Here, we elicit people’s willingness to pay (WTP) for services in the country’s state-owned parks to obtain an estimate of the value of outdoor recreation in monetary terms. A variant of the Tobit model is used in the econometric analysis to examine the WTP responses elicited by a payment card format. We also study who the current users of recreation services are in order to enable policymakers to anticipate the redistribution effects of a potential implementation of user fees. Finally, we discuss the motives for WTP, which reveal concerns such as equity and ability to pay that are relevant for planning public recreation in general and for the introduction of fees in particular.non-market valuation; payment card; recreation; recreation fees; taxes; user fees; wllingnes-to-pay; WTP

Along but beyond mean-variance: Utility maximization in a semimartingale model

It is well known that under certain assumptions the strategy of an investor maximizing his expected utility coincides with the mean-variance optimal strategy. In this paper we show that the two strategies are not equal in general and find the connection between a utility maximizing and a mean-variance optimal strategy in a continuous semimartingale model. That is done by showing that the utility maximizing strategy of a CARA investor can be expressed in terms of expectation and the expected quadratic variation of the underlying price process. It coincides with the mean-variance optimal strategy if the underlying price process is a local martingale.mean-variance portfolios; utility maximization; dynamic portfolio selection; quadratic variation

Do the opportunity costs of providing crop diversity differ between organic and conventional farms? The case of Finnish agriculture

The attractiveness of targeted environmental policies on farmlands depends crucially on the opportunity costs of the conservation programs. We use a crop diversity index as an indicator of environmental output to compare the efficiency of conventional and organic crop farms. Technical efficiency scores are estimated by applying data envelopment analysis to a sample of Finnish farms for the period 1994 – 2002. We also estimate shadow values, or the opportunity costs, of producing crop diversity. Our results show that there is variation in the shadow values between farms and the technology adopted. The findings provide a basis for designing cost-effective policy instruments such as auctions for conservation payments

Biodiversity and economic incentives in agriculture : integrating bird fauna values into decision-making

Our optimal control model identifies economic reasons as to why several farmland bird populations have dramatically declined in modern agricultural landscapes. By integrating bird fauna values into decision-making on cereal crop choice, herbicide use and hunting bag size, we derive those economic instruments needed for enhancing biodiversity on farmland and reversing the decline of grey partridge (Perdix perdix) populations. Based on the Finnish data available, we illustrate how the optimal acreage subsidy for organically-grown rye areas, the herbicide tax rate and the grey partridge hunting licence fee could be estimated in monetary terms. The procedure to derive and value the first-best policy instruments is applicable for various components of agri-environmental schemes implemented throughout the European Union

Promoting demand for organic food under preference and income heterogeneity

We examine the design of policies for promoting the consumption of green products under preference and income heterogeneity using organic products as an example. Two instruments are considered: a price subsidy for the organic products and a tax on the conventional products. Under income disparity, consumers with high income always prefer a socially optimal subsidy to a socially optimal tax, while low-income consumers prefer a tax on conventional products. When environmental policy is determined by the median voter, the policies implemented tend to be stricter than socially optimal policies if income differences are large

Modelling environmental effects of agriculture : the case of organic rye and grey partridge

Our optimal control model identifies economic reasons as to why farmland bird populations have dramatically declined in modern agricultural landscapes. By integrating recreational wildlife values into farm level decision-making on arable crop choice and herbicide use, we derive those economic instruments needed for creating suitable conditions for game bird species on farmland. Based on the Finnish data available on the grey partridge (Perdix perdix), we illustrate how the optimal acreage subsidy for organically-grown areas, herbicide tax rates and the hunting licence fee could be estimated in monetary terms. Finally, we discuss the benefits and costs of cultivating organic cereals which will enhance preservation of the grey partridge

Environmental targets and shadow prices of bad outputs in organic and conventional farming

The shadow prices can be used as indicators of the costs of environmental regulation imposed as reflected in alternative farming technologies adopted. We illustrate our analytical findings with implications of the Finnish water protection policy measures on conventional and organic livestock farms over the period 1994-2002. Generally, the representative organic farm is found to be more technically efficient relative to its own technology than is the conventional representative farm. However, there is no statistical indication of a difference between these two particular representative farms in valuing the costs of undesirable output (manure) at the margin

Modelling Environmental Effects of Agriculture: The Case of Organic Rye and Grey Partridge

Our optimal control model identifies economic reasons as to why farmland bird populations have dramatically declined in modern agricultural landscapes. By integrating recreational wildlife values into farm level decision-making on arable crop choice and herbicide use, we derive those economic instruments needed for creating suitable conditions for game bird species on farmland. Based on the Finnish data available on the grey partridge (Perdix perdix), we illustrate how the optimal acreage subsidy for organically-grown areas, herbicide tax rates and the hunting licence fee could be estimated in monetary terms. Finally, we discuss the benefits and costs of cultivating organic cereals which will enhance preservation of the grey partridge.environmental benefits, grey partridge, herbicides, optimal control, rye, Environmental Economics and Policy, Q57, Q18, H41,

Incorporating environmental impacts into value added from organic and conventional farming

We aim to improve the policy relevance of the aggregate welfare indicators regarding the economic and environmental features of farming practices. First, an analytical framework for measurement of environmentally adjusted net national product for agricultural sector is provided. Second, shadow pricing of direct disutility of environmental deterioration is illustrated with implications of the Finnish water protection policy measures restricting the use of manure on conventional and organic livestock farms during the period 1994-2002. Our simulated shadow prices per cubic meter manure are quite considerable reflecting the potentially high opportunity costs in terms of value added forgone if the only option to comply with regulation is to cut output. In practice, the organic farms seem to comply well with current regulation, and the environmentally harmful contibution of conventional farms to welfare is relatively small