THE FAILURE OF MARKETABLE PERMIT SYSTEMS AND UNCERTAINTY OF ENVIRONMENTAL POLICY: A SWITCHING REGIME MODEL APPLIED TO THE DUTCH PHOSPHATE QUOTA PROGRAM

A well-known feature of pollution control with tradable quota rights is that the benefits to ownership will capitalize into prices of the quota. Quota present a unique opportunity to examine the effect of risks introduced by governmental programs because all the return to quota is dependent upon these programs. The uncertainty of future regulatory action results from the probability that the stream of incomes could be reduced (portfolio risk) by policy variation or stopped (default risk) by a substantial switch or shock in policy regime. Eliminating the quota program is the extreme case of default risk, as it would terminate the quota benefits. The paper concentrates on the paradox that environmental regulation can provoke economic and environmental inefficiencies because of policy uncertainty. The theory on investment under uncertainty argues that when future returns are uncertain, an opportunity to wait and see has some (quasi) option value. Under uncertainty, investments and disinvestments will take place at respectively higher and lower levels of returns creating an inaction interval. This interval means that returns to quota can vary over a wide range before trade takes place and offers a new, theoretical explanation for the failure of marketable permit systems. The objectives of this paper are threefold. First, the option value theory is employed to forge a natural connection between political uncertainty and quota price volatility. Second, based on the option value theory, a switching regime model is developed for investing and disinvesting in quota. Third, the empirical evidence for the Dutch Phosphate Quota Program indicates that policy risks led to asset fixity. Consequently, the market of tradable phosphate quota was not effective with major negative implications for both economic and environmental efficiency.switching regime, option theory, policy risk, asset fixity, phosphate quota, pork production., Environmental Economics and Policy, Risk and Uncertainty,

Marketed Outputs and Non-Marketed Outputs: The Marginal Costs of Producing Ecosystem Services

We provide a new approach for assessing the cost of marginal ecosystem changes and the effectiveness of green payment schemes. The approach is based on a theoretical and empirical analysis of the bio-economic production interactions between marketed outputs and non-marketed ecosystem services at the micro level. To frame the economic nature of the problem, we employ a generalized joint production model in combination with cost minimization. The generalized joint production framework allows for the consideration of complementary, supplementary and competitive relationships between agricultural production and non-marketed ecosystem services generation and avoids double counting. From this theoretical model we distinguish three theoretical cases depending on the imposed minimum acceptable level of the non-marketed ecosystem services. We employ farm level panel data for the UK to empirically investigate these cases. More specifically, to represent and evaluate the production structure, we estimate first- and second-order elasticities derived from a flexible transformation function. Results show that the majority of farms produce agricultural output and ecosystem services in a complementary relationship. Generation of multiple ecosystem services on the same farm showed either a supplementary or competitive relationship. Changing the composition of the ecosystem services output would have very different implications for individual farms.ecosystem services, green payments, bio-economic modelling, economies of scale and scope, program evaluation., Environmental Economics and Policy, Land Economics/Use, Q18, Q57, Q58.,

Evaluating Agri-Environmental Schemes – The Marginal Costs of Ecosystem Services

We provide a new approach for assessing the cost of marginal ecosystem changes and the effectiveness of agri-environmental schemes. The approach is based on a theoretical and empirical analysis of the bio-economic production interactions between marketed outputs and non-marketed ecosystem services at the micro level. To frame the economic nature of the problem, we employ a generalized joint production model in combination with cost minimization. The generalized joint production framework allows for the consideration of complementary, substitutive and competitive relationships between agricultural production and non-marketed ecosystem services generation and avoids double counting. From this theoretical model we distinguish three theoretical cases depending on the imposed minimum acceptable level of the non-marketed ecosystem services. We employ farm level panel data for the UK to empirically investigate these cases. More specifically, to represent and evaluate the production structure, we estimate first- and second-order elasticities derived from a flexible transformation function. Results show that the majority of farms produce agricultural output and ecosystem services in a complementary relationship. Generation of multiple ecosystem services on the same farm showed either a substitutive or competitive relationship. A change in the composition of the ecosystem services output would have very different implications for individual farms.agri-environmental services, bio-economic modelling, economies of scale and scope, Agricultural and Food Policy, Environmental Economics and Policy, Q18, Q57, Q58.,

An Application of Conjoint Analysis in Agricultural Sustainability Assessment

Increasing public interest in the concept of sustainable agriculture has resulted in the development of a number of methods that could be used for the assessment of sustainability of various agricultural production systems. Because of its complex, multi-dimensional nature, sustainability is most often assessed using numerous indicators, which make aggregate comparisons among systems difficult. In this paper we propose a methodology that could be beneficial in aggregate sustainability assessment. We apply conjoint analysis to identify economic, social, and ecological attributes that are perceived as important for agricultural sustainability by different stakeholders and to assess their relative impact on the overall sustainability measure.Conjoint analysis, choice experiments, sustainability assessment, Environmental Economics and Policy,

Assessing Sustainability of Agricultural Systems: Evidence from a Conjoint Choice Survey

This study identifies a list of economic, social, and ecological agricultural sustainability attributes based on experts' opinions. Next, the attributes are used in a conjoint choice experiment which enables direct extraction of the relative impact of the attributes and attribute levels on individual respondents' perception of overall sustainability.Environmental Economics and Policy,

THE MARGINAL COST OF AGRI-ENVIRONMENTAL SERVICES

agri-environmental services, bio-economic modelling, economies of scale and scope, Environmental Economics and Policy, Land Economics/Use, Research Methods/ Statistical Methods, Q18, Q57, Q58,

Valuing the Option to Switch to Organic Farming: An Application to U.S. Corn and Soybeans

Based on option value theory, we develop a theoretical model to assess the dollar compensation required for the conversion to organic farming. Our empirical model is a switching regression model with two regimes and we use county level data on organic and conventional corn and soybean production in the U.S. for the application. Assuming an interest rate of 10 percent, a conventional corn-soybean grower would need to receive a one-time payment of $315 per acre to compensate for the conversion cost and an additional$1,088 per acre to cover the long run higher production and market risks. The sum of these two values equals an annual payment of $228 per acre for a 10 year contact. The results are discussed in the context of the recently introduced Conservation Security Program, which will make direct payments to US farmers for organic practices.option theory, organic farming, direct payments, switching regression, Conservation Security Program, Crop Production/Industries, D81, Q18,

WHO IS MOST RESPONSIBLE FOR ENSURING THE MEAT WE EAT IS SAFE?

We report results of an analysis of the attribution of relative responsibility across the stages of the food chain for ensuring food safety. Specifically, we identify perceptions of the share of the overall responsibility that each stage in the food chain has to ensure that the meat people cook and eat at home does not cause them to become ill. Results are reported for two groups of stakeholders: consumers and farmers, and for two types of meat: chicken and beef. The stakeholders’ opinions regarding the relative degrees of responsibility of the sequential food chain stages (feed supplier, farmer, livestock transportation, abattoir,… consumer) are elicited via surveys using the Maximum Difference technique (best-worst scaling). The data are analyzed using mixed logit models estimated via Bayesian techniques. We find that consumers and farmers both tend to allocate a relatively low share of responsibility to their own food safety role. So, consumers tend to think farmers are more responsible for ensuring meat safety than farmers do. Similarly, farmers tend to think consumers have a greater degree of responsibility than consumers themselves believe. Thus, there is a consistent pattern of downplaying the extent of one’s own responsibility. Further, consumers tend to allocate the highest shares of responsibility to the middle stages of the meat food chain. This contrasts with farmers who tend to allocate the highest shares of responsibility to the latter stages of the chain towards consumers, believing that the earlier stages of the chain (until the livestock arrive at the abattoir) have a relatively low share of responsibility. The analysis is currently being extended to a third group of food chain actors: abattoir workers.Maximum Difference, Best Worst Scaling, Responsibility, Food Safety, Perception, Agricultural and Food Policy, Food Consumption/Nutrition/Food Safety, Institutional and Behavioral Economics, Research Methods/ Statistical Methods, Q18, Q51, D03, D12,

LOCATION-SPECIFIC MODELING FOR OPTIMIZING WILDLIFE MANAGEMENT ON CROP FARMS

In order to guide conservation and restoration of wildlife in agricultural areas research is needed into the trade-off between wildlife and agricultural production and income. This study presents a location specific model for optimizing wildlife management on crop farms using the integer programming technique. Available data and indicators of wildlife production are presented. Furthermore, time and location aspects of wildlife management are discussed. The model is applied to crop farming in the Netherlands. Most important model outcome is a wildlife-cost frontier at the farm level. Model outcomes show that rotating wildlife conservation practices across the farm is economically more attractive than fixed-location practices. Opportunities for use of the insights provided by model results by both policy makers and farmers are analyzed.Resource /Energy Economics and Policy,