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Determining the economic gains from regulation at the extensive and intensive margins

Author

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  • Renan-Ulrich Goetz
  • Hansjörg Schmid
  • Bernard Lehmann

Abstract

Among the second-best approaches for the regulation of pollution, little attention has been paid to the distorting effect of intensive margin policies on the extensive margin. This article shows, within a dynamic framework, that regulation of the intensive margin has to be complemented by regulation of the extensive margin. Depending on the elasticity of the pollution function with respect to nitrogen use, the appropriate regulation at the extensive margin is zero, a tax or a subsidy. We show empirically that combining a nitrogen tax with land-use taxes is about 18 per cent more cost efficient than a nitrogen tax alone and 58 per cent more efficient than off-site abatement in the form of groundwater treatment. Copyright 2006, Oxford University Press.

Suggested Citation

  • Renan-Ulrich Goetz & Hansjörg Schmid & Bernard Lehmann, 2006. "Determining the economic gains from regulation at the extensive and intensive margins," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 33(1), pages 1-30, March.
    • Handle: RePEc:oup:erevae:v:33:y:2006:i:1:p:1-30
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    Cited by:

    1. Anna Lungarska & Pierre-Alain Jayet, 2018. "Impact of Spatial Differentiation of Nitrogen Taxes on French Farms’ Compliance Costs," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 69(1), pages 1-21, January.
    2. Aftab, Ashar & Hanley, Nick & Baiocchi, Giovanni, 2010. "Integrated regulation of nonpoint pollution: Combining managerial controls and economic instruments under multiple environmental targets," Ecological Economics, Elsevier, vol. 70(1), pages 24-33, November.
    3. Graeme J. Doole, 2010. "Evaluating Input Standards for Non‐Point Pollution Control under Firm Heterogeneity," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(3), pages 680-696, September.
    4. Whittaker, Gerald & Färe, Rolf & Grosskopf, Shawna & Barnhart, Bradley & Bostian, Moriah & Mueller-Warrant, George & Griffith, Stephen, 2017. "Spatial targeting of agri-environmental policy using bilevel evolutionary optimization," Omega, Elsevier, vol. 66(PA), pages 15-27.
    5. Hartmann, Michael & Hediger, Werner & Peter, Simon, 2007. "Reducing Nitrogen Losses From Agricultural Systems: An Integrated Economic Assessment," 47th Annual Conference, Weihenstephan, Germany, September 26-28, 2007 7583, German Association of Agricultural Economists (GEWISOLA).
    6. Mack, Gabriele & Huber, Robert, 2017. "On-farm compliance costs and N surplus reduction of mixed dairy farms under grassland-based feeding systems," Agricultural Systems, Elsevier, vol. 154(C), pages 34-44.
    7. Petsakos, Athanasios & Jayet, Pierre-Alain, 2010. "Evaluating the efficiency of a N-input tax under different policy scenarios at different scales," 120th Seminar, September 2-4, 2010, Chania, Crete 109397, European Association of Agricultural Economists.
    8. Zheng, Yanan & Goodhue, Rachael E., 2022. "Intensive or Extensive Margin Effects? Growers’ Responses to the Restriction of High-Volatile Organic Compound (VOC) Pesticide Products in the San Joaquin Valley, California," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322085, Agricultural and Applied Economics Association.
    9. Hartmann, M. & Hediger, W. & Peter, S., 2008. "Reducing nitrogen losses from agricultural systems – an integrated economic assessment," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 43, March.
    10. Cyril Bourgeois & Nosra Ben-Fradj & Mélissa Clodic & Pierre-Alain Jayet, 2011. "How cost-effective is a mixed policy targeting the management of three pollutants from N-fertilizers," Working Papers 2011/03, INRA, Economie Publique.
    11. Anne-Sarah Chiambretto & Elsa Martin, 2020. "Water Quantity Management in a Heterogeneous Landscape with Farsighted Farmers," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 77(3), pages 593-613, November.

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