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Agri-Environmental Program Compliance in a Heterogeneous Landscape

  • Jussi Lankoski

    ()

  • Erik Lichtenberg

    ()

  • Markku Ollikainen

    ()

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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File URL: http://hdl.handle.net/10.1007/s10640-010-9361-x
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Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 47 (2010)
Issue (Month): 1 (September)
Pages: 1-22

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Handle: RePEc:kap:enreec:v:47:y:2010:i:1:p:1-22
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  1. 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.
  2. A. Mitchell Polinsky & Steven Shavell, 1999. "The Economic Theory of Public Enforcement of Law," NBER Working Papers 6993, National Bureau of Economic Research, Inc.
  3. Rob Fraser, 2002. "Moral Hazard and Risk Management in Agri-environmental Policy," Journal of Agricultural Economics, Wiley Blackwell, vol. 53(3), pages 475-487.
  4. 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.
  5. 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.
  6. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  15. Lichtenberg, Erik, 2000. "Agriculture And The Environment," Working Papers 28567, University of Maryland, Department of Agricultural and Resource Economics.
  16. repec:ltr:wpaper:1997.08 is not listed on IDEAS
  17. Chongwoo Choe & Iain Fraser, 1999. "Compliance Monitoring and Agri-Environmental Policy," Journal of Agricultural Economics, Wiley Blackwell, vol. 50(3), pages 468-487.
  18. 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.
  19. 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.
  20. 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.
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