TRANSACTION CHAIN APPROACH TO THE REGULATION OF THE NONPOINT WATER POLLUTION FROM FARMS-RUNOFF

We offer a decentralized solution to the asymmetric information and hidden action problems in the nonpoint source (NPS) pollution case. Farmers in the same watershed generate homogeneous NPS pollution. The regulator, R, pays for (or represents a group of point-source, PS, polluters who pay for) pollution reduction credits earned by the group of the farmers. To resolve the asymmetric information problem, R is concerned with only the total level of the abatement achieved, while the group of farmers (called the Association, A), undertakes responsibility to distribute the payment so as to induce farmers to deliver abatement. We show that A can devise an optimal contract to deal with the farmers' hidden action problem. We identify the restrictions under which such a policy can be implemented, evaluate its effects on the product market, and show that in the NPS case information rents are higher than in the PS case.Environmental Economics and Policy,

Lump Sum versus Annuity: Choices of Kentucky Farmers during the Tobacco Buyout Program

Our study uses the data collected during the implementation of the tobacco buyout program in Kentucky to evaluate how rural households, diverse in income, age, family structure, location, education level, and other characteristics, made a choice between annuities and a lump-sum payment. Subjects in our field experiment did not have to retire or change their employment, as did subjects in many field studies of the choice between annuities and lump-sum payments, which allowed us to evaluate the relationship between the option choice and a decision whether to exit the tobacco market. Our results suggest that while discounted utility theory gives acceptable predictions of the farmers’ behavior, other factors have to be taken into consideration. First, there are consistent biases that describe individual intertemporal behavior, such as availability bias or acquiescence bias. Second, there is a certain degree of heterogeneity in individual intertemporal preferences that correlates with their personal characteristics, such as education and production status. Third, our analysis revealed that the decision to exit the tobacco market positively correlated with the decision to take a lump-sum payment.annuity, family business system, intertemporal choice, lump sum, tobacco buyout, Agribusiness, Consumer/Household Economics, Institutional and Behavioral Economics, Marketing, G11, H31, J10,

Farming Exit Decision by Age Group: Analysis of Tobacco Buyout Impact in Kentucky

This article analyzes factors that affected the decision to exit tobacco production in the wake of the tobacco buyout program using the data collected through a survey of Kentucky tobacco farmers. Using the Heuristic logistic regression model, we find that the decision to exit tobacco growing was affected by efficiency considerations, availability of off-farm employment, and exit barriers. Availability of off-farm employment had the strongest effect on farmers younger than 46, while the effect of variables measuring efficiency and exit barriers seemed to be more uniform across age groups. Based on the results we suggest several policy interventions.age group, industry exit, tobacco buyout, tobacco farming, Agribusiness, Crop Production/Industries, Farm Management, Institutional and Behavioral Economics, Labor and Human Capital, Marketing, Production Economics, C25, D21, E24, J00, J11, J24, J43, Q18, R23,

Livelihood Disruption and Venture Creation: Entrepreneurship as Technology Adoption, A Case of Tobacco Farmer in Kentucky

Entrepreneurship means making discrete changes in livelihood activities that involve substantial risks to income. While the rewards may be substantial, transactions costs may make decisions irreversible. This paper draws a comparison between entrepreneurship and technology adoption. Adopting a new production technology also involves substantial risks. The economics of technology adoption is a well developed literature with many accepted and testable models. Most prominent are the theories of learning by using and learning by doing. We review the technology adoption literature, drawing out lessons for entrepreneurship research. We then apply an entrepreneurship as technology adoption model to a unique dataset collected during the tobacco buyout. The uncertainty in household income and changes in economic environment during the tobacco transition payment program lead many individuals into entrepreneurial activities.entrepreneurship, technology adoption, tobacco buyout, Agribusiness, Risk and Uncertainty,

Experimental study of effectiveness of nonpoint source water pollution control group contract.

The goal of this experimental study was to test an effectiveness of a group contract designed to control nonpoint source water pollution from farms' runoff (Pushkarskaya 2003). In particular, the regulator pays for pollution reduction credits earned by the group of the farmers, who voluntary enter the contract, and is concerned only with the total level of the abatement achieved, while the group of farmers undertakes responsibility to distribute the payment so as to induce the farmers to deliver the desired level of abatement. First round of experiments was conducted using as subjects undergraduate students from the Ohio State University, second round of experiments was conducted using as a subjects Kentucky farmers, who would be an actual subjects to this policy if it is ever implemented. Experiments with farmers can be considered as an intermediate step between traditional experiments with undergraduate students and field experiments. Results of these experiments suggest, in contrast to common believes among environmental economists, that uncertainty, associated with diffusive nature of nonpoint source water pollution, not only does not affect negatively farmers' participation in the program, but also might play a positive role in promoting a cooperation within a group.Environmental Economics and Policy,

Livelihood Disruption and Venture Creation: Entrepreneurship as Technology Adoption A Comparison between Kentucky and Shaanxi Farmers

In the US, The Tobacco Transition Payment Program, also called the "tobacco buy-out," helps tobacco quota holders and producers transition to the free market. In China, the transaction of Land Use Rights providing farmers’ ability to buy or sell Land Use Rights has been seriously considered by the Chinese government. The uncertainty in household income and changes in economic environment during the US Tobacco Transition Payment Program and the Chinese Land Use Rights Regime lead many individuals into entrepreneurial activities. Entrepreneurship often means making changes in livelihood activities that involve substantial risks to income. While the rewards may be substantial, transactions costs may make decisions irreversible. This paper draws a comparison between entrepreneurship and technology adoption. Adopting a new production technology also involves substantial risks. The economics of technology adoption is a well developed literature with many accepted and testable models. Most prominent are the theories of learning by using and learning by doing. We review the technology adoption literature, drawing out lessons for entrepreneurship research. We then apply an ‘entrepreneurship as technology adoption’ model to a unique dataset collected in Kentucky, US and in Shaanxi province, China. Using a sample of 702 Kentucky farmers at the time of the buyout and 730 Chinese farmers, we test several of the implications of this model and compare significant results between Kentucky and Shaanxi farmers. This study finds that both farmers in Kentucky and Shaanxi with a strong social network are more likely to become entrepreneurs. Kentucky farmers with low income are more likely to start new businesses. The finding supports the “push” hypothesis as farmers with low income are pushed into starting a new business. The human capital factor is strongly associated with Shaanxi farmer’s entrepreneurial decision.Farm Management, Research and Development/Tech Change/Emerging Technologies,

Schemes to Regulate Non-Point Water Pollution: Making Sense of Experimental Results

Three theoretical non-point water pollution control schemes were tested repeatedly in experimental studies - tax-subsidy scheme (K. Segerson, 1988), collective fining (Xepapadeas, 1991) and random fining (Xepapadeas, 1991). Camacho and Requate (2004) summarized results reported by Spraggon (2002), Vossler et al (2002), Cochard et al (2002), and Alpizar et al (2004) and replicated their experiments. In this paper I will discuss similarity and differences among all the reported results and in particular the following two. First, both collective fining and random fining induce abatement under the target, their performance deteriorates over time, and is relatively consistent over the replications. Second, tax-subsidy scheme induced abatement over the target, its performance is consistent over time, but not over the replications. Three different theories offer an explanation of how individuals behave as members of a group: non-cooperative game theory (individuals choose to maximize their individual profits), cooperative game theory (individuals within a group choose a coalition that would maximize profit of each member of the coalition), evolutionary game theory (individuals choose to maximize their relative profits - difference between individual profit and average profit in the group). Each of these theories suggests a specific equilibrium for each of the nonpoint control schemes mentioned above, but individually does not explain experimental results. I will demonstrate that multi-objective optimization, where individuals are interested in maximizing a bundle (individual profit; payoff from a coalition, relative profit) is consistent with experimental data and accounts for recognized individual differences in players within a group (i.e. Kurzban & Houser, 2005)

Schemes to Regulate Non-Point Water Pollution: Making Sense of Experimental Results

Three theoretical non-point water pollution control schemes were tested repeatedly in experimental studies tax-subsidy scheme (K. Segerson, 1988), collective fining (Xepapadeas, 1991) and random fining (Xepapadeas, 1991). Camacho and Requate (2004) summarized results reported by Spraggon (2002), Vossler et al (2002), Cochard et al (2002), and Alpizar et al (2004) and replicated their experiments. In this paper I will discuss similarity and differences among all the reported results and in particular the following two. First, both collective fining and random fining induce abatement under the target, their performance deteriorates over time, and is relatively consistent over the replications. Second, tax-subsidy scheme induced abatement over the target, its performance is consistent over time, but not over the replications. Three different theories offer an explanation of how individuals behave as members of a group: non-cooperative game theory (individuals choose to maximize their individual profits), cooperative game theory (individuals within a group choose a coalition that would maximize profit of each member of the coalition), evolutionary game theory (individuals choose to maximize their relative profits difference between individual profit and average profit in the group). Each of these theories suggests a specific equilibrium for each of the nonpoint control schemes mentioned above, but individually does not explain experimental results. I will demonstrate that multi-objective optimization, where individuals are interested in maximizing a bundle (individual profit; payoff from a coalition, relative profit) is consistent with experimental data and accounts for recognized individual differences in players within a group (i.e. Kurzban & Houser, 2005).Environmental Economics and Policy,

Schemes to Regulate Non-Point Water Pollution: Making Sense of Experimental Results

Three theoretical non-point water pollution (NPS) control schemes were tested repeatedly in experimental studies tax-subsidy scheme (K. Segerson, 1988), collective fining (Xepapadeas, 1991) and random fining (Xepapadeas, 1991). Camacho and Requate (2004) summarized results reported by Spraggon (2002), Vossler et al (2002), Cochard et al (2002), and Alpizar et al (2004) and replicated their experiments. This paper discusses similarity and differences among all the reported results and in particular the following two. First, both collective fining and random fining induce abatement under the target, their performance deteriorates over time and is relatively consistent over the replications. Second, tax-subsidy scheme induced abatement over the target, its performance is consistent over periods, but not over the replications

TRANSACTION CHAIN APPROACH TO THE REGULATION OF THE NONPOINT WATER POLLUTION FROM FARMS-RUNOFF

We offer a decentralized solution to the asymmetric information and hidden action problems in the nonpoint source (NPS) pollution case. Farmers in the same watershed generate homogeneous NPS pollution. The regulator, R, pays for (or represents a group of point-source, PS, polluters who pay for) pollution reduction credits earned by the group of the farmers. To resolve the asymmetric information problem, R is concerned with only the total level of the abatement achieved, while the group of farmers (called the Association, A), undertakes responsibility to distribute the payment so as to induce farmers to deliver abatement. We show that A can devise an optimal contract to deal with the farmers' hidden action problem. We identify the restrictions under which such a policy can be implemented, evaluate its effects on the product market, and show that in the NPS case information rents are higher than in the PS case