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Agri-Environmental Program Compliance in a Heterogeneous Landscape

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  • Lankoski, Jussi E.
  • Lichtenberg, Erik
  • Ollikainen, Markku

Abstract

Heterogeneity of agricultural landscapes may necessitate the use of spatially targeted instrument combinations to implement the social optimum. But compliance with these policies may require costly enforcement. This paper examines the design of agri-environmental policies featuring two of the most commonly used instruments, reductions in fertilizer application rates and installation of riparian buffers. While compliance with buffer strip requirements is verifiable at negligible cost, fertilizer application is only verifiable through costly monitoring. We derive optimal subsidies for fertilizer reduction and buffer strip set-asides and enforcement strategies for the cases of low and excessive monitoring costs. An empirical simulation model suggests that enforceable policies can come close to replicating socially optimal crop production, nitrogen runoff, and overall welfare without requiring increases in overall subsidy expenditures, at least under conditions characteristic of Scandinavia. Sensitivity analysis suggests that these conclusions may carry over to areas with higher overall land quality as well.

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Bibliographic Info

Paper provided by University of Maryland, Department of Agricultural and Resource Economics in its series Working Papers with number 37797.

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Date of creation: 2008
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Handle: RePEc:ags:umdrwp:37797

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Keywords: nutrient runoff; monitoring; enforcement; Agricultural and Food Policy; Environmental Economics and Policy; Q15; Q18; H23;

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  1. Sandra Rousseau & Stef Proost, 2005. "Comparing Environmental Policy Instruments in the Presence of Imperfect Compliance – A Case Study," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 32(3), pages 337-365, November.
  2. Fraser, Rob W., 2002. "Moral Hazard and Risk Management in Agri-Environmental Policy," 2002 Conference (46th), February 13-15, 2002, Canberra 125086, Australian Agricultural and Resource Economics Society.
  3. Lichtenberg, Erik, 2000. "Agriculture And The Environment," Working Papers 28567, University of Maryland, Department of Agricultural and Resource Economics.
  4. Steven Shavell & A. Mitchell Polinsky, 2000. "The Economic Theory of Public Enforcement of Law," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 45-76, March.
  5. repec:ltr:wpaper:1997.08 is not listed on IDEAS
  6. JunJie Wu & Richard M. Adams & William G. Boggess, 2000. "Cumulative Effects and Optimal Targeting of Conservation Efforts: Steelhead Trout Habitat Enhancement in Oregon," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(2), pages 400-413.
  7. Athanasios Kampas & Ben White, 2004. "Administrative Costs and Instrument Choice for Stochastic Non-point Source Pollutants," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 27(2), pages 109-133, February.
  8. Agnar Sandmo, 2002. "Efficient Environmental Policy with Imperfect Compliance," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 23(1), pages 85-103, September.
  9. Jussi Lankoski & Erik Lichtenberg & Markku Ollikainen, 2008. "Point/Nonpoint Effluent Trading with Spatial Heterogeneity," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(4), pages 1044-1058.
  10. Per Kristian Rørstad & Arild Vatn & Valborg Kvakkestad, 2007. "Why do transaction costs of agricultural policies vary?," Agricultural Economics, International Association of Agricultural Economists, vol. 36(1), pages 1-11, 01.
  11. Lichtenberg, Erik, 2004. "Are Green Payments Good for the Environment?," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 33(1), April.
  12. Harford, Jon D., 1978. "Firm behavior under imperfectly enforceable pollution standards and taxes," Journal of Environmental Economics and Management, Elsevier, vol. 5(1), pages 26-43, March.
  13. Chongwoo Choe & Iain Fraser, 1999. "Compliance Monitoring and Agri-Environmental Policy," Journal of Agricultural Economics, Wiley Blackwell, vol. 50(3), pages 468-487.
  14. Harford, Jon D., 1987. "Self-reporting of pollution and the firm's behavior under imperfectly enforceable regulations," Journal of Environmental Economics and Management, Elsevier, vol. 14(3), pages 293-303, September.
  15. Rob Fraser, 2004. "On the Use of Targeting to Reduce Moral Hazard in Agri-environmental Schemes," Journal of Agricultural Economics, Wiley Blackwell, vol. 55(3), pages 525-540.
  16. Jussi Lankoski & Markku Ollikainen, 2003. "Agri-environmental externalities: a framework for designing targeted policies," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 30(1), pages 51-75, March.
  17. Downing, Paul B. & Watson, William Jr., 1974. "The economics of enforcing air pollution controls," Journal of Environmental Economics and Management, Elsevier, vol. 1(3), pages 219-236, November.
  18. Malik, Arun S, 1992. "Enforcement Costs and the Choice of Policy Instruments for Controlling Pollution," Economic Inquiry, Western Economic Association International, vol. 30(4), pages 714-21, October.
  19. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
  20. Madhu Khanna & Wanhong Yang & Richard Farnsworth & Hayri �nal, 2003. "Cost-Effective Targeting of Land Retirement to Improve Water Quality with Endogenous Sediment Deposition Coefficients," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(3), pages 538-553.
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Cited by:
  1. Lankoski, Jussi E. & Lichtenberg, Erik & Ollikainen, Markku, 2008. "Agri-environmental program compliance under heterogeneous conditions," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44381, European Association of Agricultural Economists.
  2. Renan-Ulrich Goetz & Yolanda Martínez, 2013. "Nonpoint source pollution and two-part instruments," Environmental Economics and Policy Studies, Society for Environmental Economics and Policy Studies - SEEPS, vol. 15(3), pages 237-258, July.
  3. Guyomard, Herve & Lankoski, Jussi E. & Ollikainen, Markku, 2005. "Impacts of Agri-Environmental Policies on Land Allocation and Prices," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24466, European Association of Agricultural Economists.
  4. Vincent Martinet, 2012. "Effect of soil heterogeneity on the welfare economics of biofuel policies," EconomiX Working Papers 2012-13, University of Paris West - Nanterre la Défense, EconomiX.
  5. Juvancic, Luka & Travnikar, Tanja & Glavan, Matjaz & Cvejic, Rozalija & Pintar, Marina, 2012. "Targeting And Spatial Impacts Of Agri-Environmental Support – Spatial Econometric Analysis Of Agri–Environmental Measures In Slovenia," 132nd Seminar, October 25-27, 2012, Skopje, Republic of Macedonia 139491, European Association of Agricultural Economists.

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