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Evaluation of Agri-Environmental Policies for Water Quality Improvement Accounting for Firm Heterogeneity

Author

Listed:
  • Graeme J. Doole

    () (University of Waikato)

  • Dan Marsh

    () (University of Waikato)

  • Thiagaragah Ramilan

    () (University of Melbourne)

Abstract

Policy makers worldwide are interested in the identification of cost-effective policy instruments to reduce diffuse pollution. A large economic model representing heterogeneous farms is used to evaluate a broad set of policies for reducing nitrate regulation within a large catchment dominated by dairy production. A policy instrument that allows the level of abatement to vary among producers according to differences in abatement cost is most cost-effective. The primary goal of 26 kg N ha-1 can be achieved at a cost of $15 ha-1 under this cap and trade policy, while a uniform cap on emissions for all farmers would be more than three times as expensive ($49 ha-1). In contrast, requiring uniform reductions in stocking rate, banning the application of nitrogen fertiliser, and land retirement perform poorly. These instruments are at least three times more costly than a cap and trade policy over all simulated reductions. Moreover, the differentiated policy does not greatly alter the distribution of farm profit, relative to what exists without regulation. The use of a large, complex economic model incorporating disaggregated farms provides unique insight into the economic benefits accruing to a differentiated policy.

Suggested Citation

  • Graeme J. Doole & Dan Marsh & Thiagaragah Ramilan, 2011. "Evaluation of Agri-Environmental Policies for Water Quality Improvement Accounting for Firm Heterogeneity," Working Papers in Economics 11/13, University of Waikato.
  • Handle: RePEc:wai:econwp:11/13
    as

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    File URL: ftp://wms-webprod1.mngt.waikato.ac.nz/RePEc/wai/econwp/1113.pdf
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    References listed on IDEAS

    as
    1. Basset-Mens, Claudine & Ledgard, Stewart & Boyes, Mark, 2009. "Eco-efficiency of intensification scenarios for milk production in New Zealand," Ecological Economics, Elsevier, vol. 68(6), pages 1615-1625, April.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    diffuse pollution; economic model; cap and trade policy;

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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