Valuation of environmental and social functions of the multifunctional Cypriot agriculture

The multifunctional farming sector in Cyprus poses threats on the island’s water resources, but highly contributes to the protection of the cultural identity and to the provision of incomes and employment in its rural areas. These services are externalities, as farmers are not remunerated in markets for the environmental and cultural services they provide, nor for the fact that they maintain vivid rural areas. This paper presents an application of the Choice Experiment method, in order to evaluate these non-traded outputs of Cypriot agriculture. The results of the empirical analysis demonstrate that the Cypriot public is in favor of a less intensive pattern of agriculture. Furthermore, Cypriots are willing to pay in order to mitigate adverse environmental effects of agriculture, to improve cultural heritage and to safeguard the continuation of farming trade on the island. The estimated benefits often exceed income losses from changes in the cropping pattern towards extensification, which verifies that EU rural development policies are regarded as beneficial by the public.     

A reconsideration of the problem of social cost: Free riders and monopolists

Summary. One version of the Coase Theorem is, If property rights are fully allocated, competition leads to efficient allocations. This version implies that the public goods problem can be solved by allocating property rights fully. We show that this mechanism is not likely to work well in economies with global externalities because the privatized economy is highly susceptible to strategic behavior: The free-rider problem manifests itself as a complementary monopoly problem in an associated private goods economy. Thus, our work relates the validity of the Coase Theorem to the literature on the incentives for strategic behavior in economies with complementarities. Received: 12 May 1999; revised version: 9 July 1999     

CONTROL POLICIES TO COMBAT THE HEALTH RISKS FROM SMOKING AND PASSIVE SMOKING1

Good information is necessary for markets to allocate resources efficiently. Tobacco is a demerit good; smoking endangers smokers but also exerts externalities on non‐smokers. Public policies, however, foster misinformation, are contradictory and damage public health. Current policies also deny feedback from the tobacco industry and reduce consumer information about tobacco products that could substantially reduce the harmful effects of smoking.     

Interpreting suboptimal business outcomes in light of the Coase Theorem: Lessons from Sidmouth International Festival

The management team of the world-famous Sidmouth Festival resigned in 2004, after failing to secure bad-weather underwriting worth £200,000, and amidst widespread fears that the Festival was doomed. While claims of a local economic impact of £5 million are seriously flawed, it is highly likely that the local economy did benefit by at least several times the amount of the required insurance. Failure to capture these net positive benefits is linked to ill-defined property rights, rising transaction costs, incomplete information from unreliable sources, and actual or feared free riding. These conditions prevented the type of efficient bargaining solution in the face of externalities envisioned by the Coase Theorem. Practically all of the problems preventing the ideal Coasean solution could have been addressed by granting key stakeholders' individual ownership rights. Hence, while the Coase solution was not applicable, the Theorem's predictions (or its corollary's predictions) were confirmed.     

Are family allowances and fertility-related pensions perfect substitutes?

This paper discusses alternative ways to deal with the positive externalities of having children in a pay-as-you-go pension system. Family allowances are compared to introducing a fertility-related component into the pension formula. In an endogenous labor supply setting, both instruments are shown to be equivalent if general pensions are related to previous contributions. In contrast, if general pensions are of the flat-rate type, making pensions contingent on the number of children is generally preferable to family allowances because the latter creates a larger tax load on labor supply.      

Experiences of sustainability assessment: An awkward adolescence

Accounting for sustainability is approaching its (metaphoric) teenage years – keen to assert independence, yet still reliant on the security of its background disciplines and not quite mature enough to make its own judgements. One example is the Sustainability Assessment Model, a full-cost-accounting tool that monetizes externalities. This paper examines its application in case studies where it faced issues over assessment boundaries, data limitations, and stakeholder engagement. There is much development needed, especially around engagement and externalities, before such techniques can achieve independent lives of their own away from their research-based caregivers.     

Stationary equilibria in bargaining with externalities

This paper studies infinite-horizon bargaining between a seller and multiple buyers when externalities are present. We extend the analysis in Jehiel and Moldovanu by allowing for both pure and mixed equilibria [Jehiel, P., Moldovanu, B., 1995a. Cyclical delay in bargaining with externalities. Rev. Econ. Stud. 62, 619–637]. A characterization of the stationary subgame perfect equilibria in generic games is presented. Equilibria with delay exist only for strong positive externalities. Since each buyer receives a positive payoff when the seller makes an agreement with some other buyer, positive externalities induce a war of attrition between buyers.     

A four-sector macroeconometric model for Greece and the evaluation of the community support framework 1994–1999

This paper describes a macroeconometric model for Greece and its use for the evaluation of the effects that investment inflows from European Union in the form of the Community Support Framework (CSF) might have on the economy. The model consists of four sectors of economic activity, namely those of traded and non-traded goods, the public and agricultural sectors, and includes a detailed system of price formation, wage setting and public finances. The model is subjected to a number of stylised shocks in domestic and international variables, so that the dynamic properties and multipliers can be analysed. The evaluation of likely CSF effects is conducted by first constructing a benchmark forecast until 2010 and then assess the impact of CSF actions. CSF flows cause both a rise in total demand and in domestic supply through positive supply-side externalities and the evaluation distinguishes between a very low and a full degree of utilising the plausible opportunities. The universal conclusion is that, in the absence of externalities, CSF actions produce only a temporary rise in activity and employment. After the period of inflows expires, the economy will return to the course that would have been the case without the funds. However, if externalities are assumed to operate even at a moderate scale, the picture changes starkly: output, productivity, employment and the exporting capacity of the country improve significantly.     

Culture and human capital in a two-sector endogenous growth model

Recent literature in the field of cultural economics highlights a possible inversion in the usual causality relation (from economic growth to culture) and points out that culture may represent an important driver of economic growth. By viewing culture in line with Throsby’s (2001) definition of cultural capital (i.e., an asset of tangible and intangible cultural expressions), in this article we analyze one possible channel through which culture may positively affect economic growth, namely the existence of a relationship of complementarity between cultural and human capital investments. Using a two-sector endogenous growth model, we find that in the long run a higher growth rate of real per-capita income can be attained the more cultural and human capital investments are complementary for each other in the process leading to agents’ skill acquisition. We also analyze the conditions under which an increase of the cultural capital share in total GDP can be conducive to a rise of real per-capita income.     

Estimating a socially optimal water price for irrigation versus an environmentally optimal water price through the use of Geographical Information Systems and Social Accounting Matrices

This article develops a method for establishing water prices and their effects in order to provide policy makers an environmentally and socially optimal range of regional prices for irrigation water. Two prices are determined. The “environmentally optimal price” of water is defined as the one that internalizes the environmental costs generated by agricultural consumption. The “social optimally price” of water is defined as the one that maximizes levies on water for agriculture without affecting the regional economy. The environmentally optimal price is calculated with an economic model built over a Geographical Information System (GIS) that allows the economic quantification and valuation of the environmental cost of water in different basins. The optimal price is calculated with a demand curve for irrigation water introduced into a Social Accounting Matrix (SAM) to observe if the regional economy can accept higher prices without affecting the regional GDP. Potential water prices are established, ranging from prices that minimize the negative impact in the regional economy to those that totally internalize the environmental cost of water.