Why Isn’t More US Farmland Organic?

We develop a theoretical model to assess the dollar compensation required to induce conventional growers to convert to organic. The model incorporates the uncertainty in producers’ expectations about future returns and about the impact of policy changes on these expectations in particular. We demonstrate that a new policy which favours organic can have opposing effects on the rate of conversion. An increase in relative returns to organic today will increase conversion rates. However, if the future of the policy programme is uncertain, its introduction can increase the value of waiting to switch, which will decrease conversion rates. We then develop an empirical switching regression model that enables direct estimation of the value associated with being able to postpone the conversion decision until some of the uncertainty is resolved. The model is applied to data on organic and conventional soybeans before and after major changes in US farm policy toward organic growers. The results suggest that sunk costs associated with conversion to organic coupled with uncertainty about future returns can help to explain why there is so little organic farmland in the USA.     

Classical decision rules and adaptation to climate change*

One approach to rationalising policies for addressing potentially catastrophic climate change when such policies may prove unnecessary is to suppose the policies provide a form of social insurance even in the presence of pure uncertainty. Then, provided the policies are effective, such insurance can be justified as a precautionary or minimax response. Even if the policies are potentially ineffective however, intervention can be justified as an attempt to minimise the regret experienced by future generations. This reasoning extends to justify ‘all weather’ policies provided such policies always reduce policy costs. If, however, policy decisions provide ‘all weather’ benefits in only certain states of the world, this rationale breaks down. Minimising regret can establish a case for ‘mixed’ policy responses provided adopting a policy mix precludes the chance that intervention will fail altogether. Precautionary policies and policies which minimise regret are computed for a simple, dynamic, adaptive climate change planning problem and sufficient conditions for policy maker pessimism provided.     

Market Emergence and Transition: Arbitrage, Transaction Costs, and Autarky in China's Grain Markets

Using trimonthly Chinese provincial grain prices from 1988 to 1995, we estimate a parity-bounds model of interregional trade for four subperiods to characterize how multiple aspects of market performance change during the process of economic transition. For each period, we estimate the extent to which arbitrage opportunities are realized by traders, the transaction costs between location pairs, and the likelihood that regions do not trade. Trade restrictions cannot explain the pattern of uneven market development over time. Infrastructure bottlenecks, managerial incentive reforms, and production specialization policies, all were likely important factors affecting market performance.     

政府经营性土地储备供应决策——基于实物期权的理论模型

研究目的:探讨政府的经营性土地储备供应决策方法,以增加出让收入及抑制开发商囤地行为。研究方法:实物期权理论,案例研究法。研究结果:(1)将土地供应权视为基于房产的实物期权,推算出了最优供应时机和理论价值,研究发现市场不确定性将提高土地期权价值,并使最优供应时机延后;(2)案例比较分析发现,地块的实际出让时间越接近理论最优供应时机,出让收入越高,但实际上政府对地块并未做出准确的价值判断。研究结论:(1)依据实物期权模型做出的土地储备供应决策更能有效地把握市场形势波动的时机;(2)模型在中国的应用需要可监督的公共财政体系以及财政分成体制改革。     

Why do transaction costs of agricultural policies vary?

Policy related transaction costs (TCs) is an important issue when evaluating different policy options. However, TCs are often not taken into account in policy evaluations, but may be as important for efficiency as the direct production costs. Different policies may result in different TCs, and the main aim of this article is to explore possible reasons for these differences. We compare the level of TCs for 12 different agricultural policy measures in Norway, and we analyze the causes of the differences along three different dimensions: asset specificity, frequency, and point of policy application. At the national level we find that all three dimensions are of importance when explaining the differences, while variation in TCs incurred by farmers are mainly due to differences in point of policy application and asset specificity. Data show that direct price support has the lowest TCs, while more direct payments for environmental amenities has the highest.     

Efficient Waste? Why Farmers Over-Apply Nutrients and the Implications for Policy Design

Understanding why farmers over-apply fertilizer is essential to designing effective agro-environmental policy. If farmers are simply inefficient, possibilities exist for simultaneously improving farm profits and the environment. If not, costly trade-offs are necessary. This article examines why farmer perceptions of agronomic advice, input substitutability, hidden opportunity costs, uncertainty, and risk aversion can make it economically rational to "waste" fertilizer by applying it above agronomically recommended rates. I use this information to evaluate the relative merits of policy responses such as insurance, education, cost-shares, regulation, taxes, and land retirement.     

Investment in site-specific crop management under uncertainty: implications for nitrogen pollution control and environmental policy

This paper applies an option‐pricing model to analyze the impact of uncertainty about output prices and expectations of declining fixed costs on the optimal timing of investment in site‐specific crop management (SSCM). It also analyzes the extent to which the level of spatial variability in soil conditions can mitigate the value of waiting to invest in SSCM and influence the optimal timing of adoption and create a preference for custom hiring rather than owner purchase of equipment. Numerical simulations show that while the net present value (NPV) rule predicts that immediate adoption is profitable under most of the soil conditions considered here, recognition of the option value of investment indicates that it is preferable to delay investment in SSCM for at least 3 years unless average soil quality is high and the variability in soil quality and fertility is high. The use of the option value approach reveals that the value of waiting to invest in SSCM raises the cost‐share subsidy rates required to induce immediate adoption above the levels indicated by the NPV rule.     

Assessing the effectiveness of rural credit policy on the adoption of integrated crop-livestock systems in Brazil

This study analyzes the effectiveness of rural credit policy to increase the adoption of ICLS. Analyzes are based on a survey with 175 farmers in the State of São Paulo, Brazil. Our estimates suggest that rural credit has positive and relevant impacts on the adoption of ICLS. In turn, the adoption of these systems may also involve investments in fixed capital and increases in operational costs, which create additional demand for rural credit. Other factors, such as access to extension policy, production scale, ex-ante perceptions, and market infrastructure also explain ICLS adoption. The access to rural credit policy is also determined by dependence on farm income, farmer’s perception of transaction costs, and supply of credit in the municipality. The study finally discusses important implications for the devising of rural credit policies and the diffusion of sustainable production systems in developing countries.     

公共政策及其响应:基于农民信任机制的解释——以农地确权政策为例

本文基于“交易类型—公平感知—政治信任”的研究框架,分析中国农村公共政策的响应逻辑。公共政策响应依赖于政治信任,较高水平的政治信任能够降低政策实施的交易成本。其内在机制在于,各层级政府与个体在政策响应过程中构成了康芒斯式的交易类型组合,进而催生个体产生不同的公平诉求,最终影响个体对各层级政府的政治信任。本文以农地确权政策为例,将政治信任作为农户响应农业政策的代理变量并使用广东省农户调研数据进行实证检验。结果表明,结果公平、程序公平、信息公平和人际公平均显著提升了农户对地方政府的政治信任;人际公平显著提升了农户对中央政府的政治信任;整体公平感知对农户的地方政府信任有显著正向影响。实证结果在控制住人际信任、家庭政治资本与社会网络、村庄禀赋与历史因素后仍然稳健。本文的政策启示是,在农村公共政策实施中,鼓励多维公平的实现,谨慎对待政策推进的效率攀比,这对提升农民的政治信任并激发社会活力具有重要现实意义。     

Rural Development Programmes and Transaction Effects: Reflections on Maltese and English Experience

New institutional economics, and transaction effects in particular, are highly relevant to public policy performance. The evolution of EU rural development policy has generated both increasing complexity and increased transaction costs. However, this policy evolution also creates opportunities for improvement of policy process management. The paper considers these opportunities in the case of Rural Development Programmes (RDPs) under Pillar 2 of the CAP. We examine the influence of transaction effects on RDP performance, based on direct experience of RDP review and planning in England and Malta, where qualitative evidence of ‘transaction benefits’ is identified. Benefits occur when exchange processes are designed in ways that generate positive returns beyond the immediate transaction, which can outweigh short‐term costs. We conclude that more attention to these aspects of policy design is warranted in future rural development programming and evaluation.     

Exploring the cost effectiveness of land conservation auctions and payment policies*

This article evaluates the cost‐effectiveness of the Catchment Care Australian conservation auction. It provides evidence of auction cost effectiveness, and estimates cost savings from two discrete components: (i) the opportunity cost revelation incentive provided by the auction mechanism, and (ii) the improved environmental targeting capacity that results from development of a scientifically based environmental benefits assessment capacity. Results show that there are potentially very large returns associated with the latter component that have been overlooked in the literature. Additionally, transaction costs involved with administering the case study conservation auction and the prior non‐auction payment policy are compared. We find that the administration costs for the auction were greater than or equal to those associated with the prior policy. Estimates of relative cost effectiveness across policies are shown to be sensitive to the methods of comparison. In this case study, there is inelastic supply of the last units of environmental benefit. This inelasticity results in large estimated auction comparative cost advantage when the benefit metric is the estimated cost required to achieve auction aggregate environmental benefit. Estimated benefit of the auction is much less when measured as environmental benefits attainable with alternative payment policies subject to the auction budget constraint.     

Intermediaries in environmental offset markets: Actions and incentives

Transaction cost theory and application tells us that when buyers and sellers in a market incur transaction costs, intermediaries may become involved. Specifically, intermediaries influence the cause of the transaction costs to buyers and sellers such that transaction costs are reduced. In this paper we assess if and how this occurs for a number of case study government created and private emergent intermediaries in Australian environmental offset markets. We find that the causes of transaction costs to buyers and sellers in offset markets – asset specificity, uncertainty and transaction frequency are influenced downwards by intermediaries. The degree of influence depends on the nature of the good traded in the offset market. We also assessed if the public intermediaries studied were operating in the offset markets to reduce the incidence of probity hazard (poor transactions) from private intermediaries. We found that this was not the case.     

Assessing Market Efficiency

Abstract

Government regulations through import licensing and “seasonal calendars” entail large transaction costs for traders operating in the fruit and vegetable wholesale market in Oman. Monitoring and enforcing these market regulations increase search costs and reduce market efficiency. The objective of this study is to develop a methodology to categorize and measure transactions costs by analyzing traders perceptions and attitude toward regulatory measures, and other market activities. Results show that importers operating at Al-Mawaleh market face the highest level of transaction costs. The changing nature of import calendar as well as the import license procedure represents significant elements of uncertainty that rise the importers' search and monitoring costs. It is suggested that the conversion of these non-tariff barriers into tariffs along WTO rules would reduce market uncertainty and increase market efficiency.     

Assessing a Policy Grab Bag: Federal Water Policy Reform

This article examines the economic impacts of policy alternatives for addressing allocative inefficiencies among agricultural, urban, and environmental uses of federal water. The Central Valley Project Improvement Act, composed of multiple incentive–based and command–and–control policies, forms the context for this analysis. Estimated multi–output agricultural revenue functions and urban water demand functions are incorporated into a nonlinear programming model designed to predict changes in water use, returns to agriculture, and urban consumer surplus. Results suggest that analysis that does not explicitly model policy instruments implemented at sub–optimal levels and, as part of a package of reforms, could over– or underestimate the costs, benefits, and effectiveness of each policy instrument.     

A Transaction Cost Primer on Farm Organization

Agricultural economists, with their knowledge of farming, are well positioned to take advantage of the fertile ground of economic organization. The transaction cost paradigm is particularly useful in addressing such questions and is outlined in this paper. The overriding theme in the transaction cost approach is that patterns of ownership and contracts are chosen to mitigate transaction costs, which result from attempts to establish and maintain property rights. In agriculture, transaction costs are heavily influenced by Mother Nature. Nature's uncertainty, via weather and pests, leads to moral hazard and seasonal forces impose constraints on production cycles that are not often found in the production of most other commodities. Applications in land contracts, asset control, and business organization are discussed.     

Alternatives to local content requirements in resource-rich countries

This paper discusses whether and to what extent resource-rich developing countries should introduce local content policies, i.e. requirements to include local inputs in petroleum extraction activities of multinational corporations. We argue that local content needs to be seen as a public expenditure question, since local content requirements increase multinational costs, and hence reduce the taxes which can be extracted from these companies. This implies that there are opportunity costs in imposing local content requirements, since the forgone taxes can be used in others ways which could potentially do more to improve development prospects. Moreover, past experiences of resource-rich developing countries suggest that local content policies can exacerbate key problems of patronage and rent-seeking which resource rents generate, increasing the chance that the resource wealth will prevent rather than help development. These arguments suggest that an optimal local content policy in the context of flawed institutions is a more limited one than those typically pursued by developing countries with recently discovered petroleum reserves. Using qualitative data from Tanzania, a country with recent discoveries of substantial natural gas deposits, we analyze why local content tends to become such a central issue in debates and policy processes, despite its potentially problematic aspects.     

Testing vertical price transmission for Vietnam's Robusta coffee

Vietnam has undergone market reforms over the last three decades; and as a consequence, the coffee sector has become increasingly market‐driven. The success of the government's liberalisation policies in terms of market efficiency is investigated by examining the transmission of both positive and negative price changes for Robusta coffee between export and farmgate prices. We used a threshold vector error correction model and high‐frequency daily data. The primary result here is that of a symmetric price transmission between export and farm‐level prices. This result holds when tested with weekly price data, derived from the daily data. Farmgate prices respond faster to decreases than increases in export prices when the long‐run deviation exceeds a certain threshold. These price changes are transmitted within several days. This research also confirms the importance of transaction costs, and other price frictions mostly ignored in prior analyses for coffee.     

Technology,market policies and institutional reform for sustainable land use in southern Mali

To identify appropriate interventions that support sustainable land use; a farm household modelling approach is applied to analyze micro-economic supply reactions to various policy measures. The modelling framework links agro-technical and economic data, and takes both production and consumption decisions into account, allowing land use and production technology adjustments in accordance with farm household objectives. Different types of farm households are distinguished on the basis of their resource endowments, savings coefficients and time discount rate. Actual and alternative (sustainable) cropping and livestock activities for different weather regimes are defined for southern Mali. The effects on sustainable land use and expected farm household welfare of adopting alternative technologies and modifying prices, transaction costs, access to credit and land taxes are demonstrated. Even with full information on sustainable technologies, strong policy interventions are required to halt soil degradation. Structural policies proved to be more effective than price policies to reduce soil degradation while maintaining positive income effects. When prices are determined endogenously, structural policy loses some effectiveness as an incentive for sustainable land use due to the effect of additional supply on local cereal and meat Prices.     

Optimal conservation policy under imperfect intergenerational altruism

In this paper we study the optimal conversion policy set by a society composed of a sequence of non-overlapping imperfectly altruistic generations. We show that society can be equivalently viewed as a sequence of hyperbolic discounting agents. Under uncertainty about future pay-offs we determine, as solution to an intergenerational non-cooperative dynamic game, the optimal timing of irreversible conversion. We show that under both naive and sophisticated beliefs about future time-inconsistency, the option value attached to the conversion decision is eroded and earlier conversion occurs. This determines a drastic bias toward the current generation gratification, which affects the intergenerational allocation of benefits and costs from deforestation.