THE IMPORTANCE OF FUNCTIONAL FORM IN THE ESTIMATION OF WELFARE

Researchers have recognized the central role that the choice of functional form has on estimated of consumer surplus. The purpose of this paper is to quantify the magnitude of errors which might arise from the use of incorrect functional forms. It describes a simulation experiment where estimated consumer surplus, based on simulated data sets, is compared with consumer surplus computed directly from the simulate data. The errors resulting from the use of mismatching functional forms range from approximately 4% to 107%.Institutional and Behavioral Economics, Research Methods/ Statistical Methods,

A Simulation Approach to Comparing Multiple Site Recreation Demand Models Using Chesapeake Bay Survey Data

To value water quality improvements in the Chesapeake Bay or elsewhere, it is necessary to choose an appropriate model of consumer behavior. A number of different travel cost based recreation demand models have been employed to value changes in water quality or beach access. Among the possible models to choose from are the typical trip model, the pooled observations approach, a varying parameter model, and a logit model. Each approach makes different assumptions about the structure of individual preferences and the choice process underlying individual decisions. The purpose of this paper is to implement a methodology that can be used to suggest a model (or models) appropriate for valuing quality improvements in the Chesapeake Bay. To compare these approaches, a series of outdoor recreation user populations is constructed by choosing a utility function, its parameter values and an error distribution. This information is combined with the characteristics of individuals and recreation sites from a Chesapeake Bay recreation demand survey to solve the individual's maximization problem. Each of the models is estimated using these data, and the compensating variation of a quality change is calculated. Benefit estimates are compared with simulated welfare change to evaluate the models.Community/Rural/Urban Development, Demand and Price Analysis, Environmental Economics and Policy, Research Methods/ Statistical Methods, Resource /Energy Economics and Policy,

Consequences of Co-Benefits for the Efficient Design of Carbon Sequestration Programs, The

In this paper, we study the social efficiency of private carbon markets that include trading in agricultural soil carbon sequestration when there are significant cobenefits (positive environmental externalities) associated with the practices that sequester carbon. Likewise, we investigate the efficiency of government run conservation programs that are designed to promote a broad array of environmental attributes (both carbon sequestration and its cobenefits) for the supply of carbon. Finally, policy design and efficiency issues associated with the potential interplay between a private carbon market and a government conservation program are studied. Empirical analyses for an area that represents a significant potential source of carbon sequestration and its associated cobenefits illustrate the magnitude and complexity of these issues in real world policy design.

Carbon Sequestration in Agriculture: an Offset Program versus Other Conservation Programs

In this paper, we study the social efficiency of private carbon markets that include trading in agricultural soil carbon sequestration when there are significant co-benefits (positive environmental externalities) associated with the practices that sequester carbon. Likewise, we investigate the efficiency of government run conservation programs that are designed to promote a broad array of environmental attributes (both carbon sequestration and its co-benefits) for the supply of carbon. Finally, policy design and efficiency issues associated with the potential interplay between a private carbon market and a government conservation program are studied. Empirical analyses for an area that represents a significant potential source of carbon sequestration and its associated co-benefits illustrate the magnitude and complexity of these issues in real world policy design.Environmental Economics and Policy,

State Level Efforts to Regulate Agricultural Sources of Water Quality Impairment

The U.S. policy regarding water quality is codified in the 1972 Clean Water Act and amendments. The Act formally distinguishes between point sources and nonpoint sources of pollution entering waterways and assigns primary responsibility for controlling nonpoint source pollution to the states. Point sources—such as industrial facilities or wastewater treatment plants—fall under the National Pollutant Discharge Elimination System requirements of the Clean Water Act, and being so are subject to federal regulation and permitting requirements. A substantial reduction of emissions from point sources to waterways has occurred since the adoption of these requirements, leading to much improved water quality in many watersheds. However, in many agriculturally dominated watersheds, point sources contribute a relatively small percent of the overall nutrient load and, therefore, the restrictions on these sources have not achieved the desired improvements in water quality. The nutrients of primary concern in these watersheds are nitrogen and phosphorus, which cause excessive plant and algae growth resulting in water quality degradatio

Empirical Assessment of Baseline Conservation Tillage Adoption Rates and Soil Carbon Sequestration in the Upper Mississippi River Basin

The study proposes a methodology for developing a carbon sequestration baseline attributable to the current use of conservation tillage. An integral component of the methodology is the explicit acknowledgment that there is an uncertainty in the baseline because of the uncertainty associated with the use of econometrically estimated models. The results of applying the method to a major crop production area, the Upper Mississippi River Basin in the central United States, are reported for two major crops in the region, corn and soybeans. The approach to estimation of the baseline should be readily transferable to other geographic areas and conservation practices.Environmental Economics and Policy,