A Classroom Experiment about Tradable Permits

This article describes an experimental market designed for undergraduate classes in agricultural economics, environmental economics, public finance, or rural development. The experiment is a series of double-oral auctions that demonstrate private and social costs, externalities and market failures, and the efficiency of tradable permits relative to Pigouvian taxes. The novel feature is the non-pecuniary way that the negative production externality is mimicked in the classroom experiment. Details, instructions, and suggestions for how to tailor the experiment for different classes or purposes are included.     

Export Sectors and Rural Development

The export base hypothesis is that a region's growth is led by export demand, given perfectly elastic factor supplies. It is a rationale for "sector-based" rural development policies, and it is formalized by input-output models. But it is contested by modern trade, migration, and growth theories, and there is little research about its empirical relevance. We investigate the hypothesis for contemporary U.S. rural development by estimating the influence of export sector employment on subsequent rural development outcomes. The results reject the hypothesis that emphasizing traditional export employment results in rural growth, reject the assumption of perfectly elastic factor supply, and support alternative explanations.     

Rural/Urban Welfare Program and Labor Force Participation

Nonmetro poor in the Midwest participate more in the labor force and less in welfare programs than metro poor. We formalize how household composition, capital, labor market conditions, and state-specific regulations define opportunity sets, then estimate a bivariate binomial probit model of work and program participation choices. An Oaxaca decomposition analysis is conducted to compare differences in characteristics to differences in behavior in explaining the two groups' choices. We find no behavioral basis for the difference in labor market participation. And while most of the lower Midwestern nonmetro welfare program participation is due to demographics, some is due to different life-cycle behavior.     

Agricultural Subsidies and Rural Development

How consistent is a single farm payment system with rural development goals? A new economic geography model is used to compare coupled subsidies to ‘single farm payments’ effects on the location of farming, agro‐industry and non‐farm activity between rural and urban areas. This abstract model features a majority of employment in service sectors, farming vertically linked to manufacturing, and strong preferences for geo‐varieties. It appears that both coupled subsidies and single farm payments can decrease spatial agglomeration. But only the single farm payment policy raises welfare in both rural and urban regions of this stylised economy.