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Muddy Waters: Soil Erosion and Downstream Externalities

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  • Ekbom, Anders

    ()
    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Brown, Gardner M.

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Sterner, Thomas

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract

Soil erosion and fertilizer run-off cause serious flow externalities in downstream environments through-out the world. Social costs include e.g. loss of health, life and production due to pollution and eutrophication of freshwater resources, reduced life of hydro-power plants, increased turbidity, and degradation of coral reefs and marine resources. The key optimal control models on soil capital management omit downstream externalities and assume that the individual farmer and society share the same objective function. In the presence of externalities, there is a discrepancy. In this paper the social planner aims at maximizing the profits from agriculture subject to a soil dynamics-constraint and external damage costs caused by downstream contamination from soil and fertilizer leakage. These effects are not considered by the farmer. Comparative statics analysis shows that factors which promote a low discount rate (tenure security, access to credits, crop insurance etc.) will reduce soil erosion and nutrient leakage and promote accumulation of soil capital. Socially optimal subsidies for soil conservation not only will build-up soil capital and increase on-site crop production, but will also reduce nutrient leakage and soil loss. A charge on fertilizer would reduce fertilizer use and thus reduce the water pollution caused by leakage of inorganic nutrients. Based on our model results, combined with an extended discussion on policy instruments, we conclude that the government should try to provide incentives, not necessarily to stop soil loss per se (since the farmers will look after their own capital) but to avoid contamination of downstream environments, where the resource users have few opportunities to negotiate with the upstream farmers, who may even be unaware of the problems they cause.

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Bibliographic Info

Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 341.

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Length: 38 pages
Date of creation: 27 Jan 2009
Date of revision:
Handle: RePEc:hhs:gunwpe:0341

Contact details of provider:
Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
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Keywords: optimal control theory; micro analysis of farm firms; resource management; soil erosion;

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References

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  1. Katherine R. Smith, 2006. "Public Payments for Environmental Services from Agriculture: Precedents and Possibilities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(5), pages 1167-1173.
  2. LaFrance, Jeffrey T., 1992. "Do Increased Commodity Prices Lead To More Or Less Soil Degradation?," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 36(01), April.
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  6. Elwin G. Smith & Carl F. Shaykewich, 1990. "The Economics of Soil Erosion and Conservation on Six Soil Groupings in Manitoba," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 38(2), pages 215-231, 07.
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  12. Kosoy, Nicolas & Martinez-Tuna, Miguel & Muradian, Roldan & Martinez-Alier, Joan, 2007. "Payments for environmental services in watersheds: Insights from a comparative study of three cases in Central America," Ecological Economics, Elsevier, vol. 61(2-3), pages 446-455, March.
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  15. Barrett, Scott, 1991. "Optimal soil conservation and the reform of agricultural pricing policies," Journal of Development Economics, Elsevier, vol. 36(2), pages 167-187, October.
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  17. Francisco, Herminia A. & Cruz, Wilfrido & Conway, Zenaida T., 1988. "The On-Site and Downstream Costs of Soil Erosion," Working Papers WP 1988-11, Philippine Institute for Development Studies.
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  20. Sierra, Rodrigo & Russman, Eric, 2006. "On the efficiency of environmental service payments: A forest conservation assessment in the Osa Peninsula, Costa Rica," Ecological Economics, Elsevier, vol. 59(1), pages 131-141, August.
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