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AGRICULTURE & ENVIRONMENT (WATER POLICY (SHORTAGE and allocation…
AGRICULTURE & ENVIRONMENT
DIFFERENCES
DEFINED property rights for agriculture
TEMPORAL and Spacial separation of cause and effect
LACK information - can't measure supply and demand for enviro quality
PROBLEM
EXTERNALITY cause failure of marginal principle of social efficiency
marginal social benefit DOESN'T EQUAL marginal social cost
PRIVATE incentives - employ abatement up to MPC = MPB
HIGH transaction cost
ABSENCE of natural property rights
POLICY OPTIONS
MORAL SUASION (gov)
EDUCATION programs - formal & informal
REGULATIONS - quotas, direct control
PERFORMANCE STANDARDS
OUTPUTS of firms
ABSOLUTE limit of level of emission
DESIGN STANDARDS
PROCESS
QUOTAS on input
licensing and registration
ACTIVITY PERMITS and management plans
CARBON tax
PROBLEMS
GO NO further than standard
INABLE to set sensible standards
PLEAD ignorance or pay fine anyway
ECONOMIC instruments
PIGOUVIAN TAXES - tax to internalize externalities
CREATING markets - cap and trade
TRADABLE permits - rights to create certain amount of externality
MINIMIZE cost of achieving pollution target
PERFORMANCE based
CHARGE emission
NON compliance fees
PERFORMANCE bonds
PROBLEMs
difficult to measure
difficult to LINK output to practices
DESIGN based
INPUT charges - efficient but need high environmental objectives
SUBSIDIES - popular but ineffective
OUTPUT CHARGES - exacerbate problem
WATER POLICY
SHORTAGE and allocation problem
RIVAL but non excludable
PRICING determines allocation bu no market for water
need to DEFINE, secure and enforce property rights
PRICE low --> too much used
SOIL and LAND
EROSION
DEPLETION - nutrients and micro-organisms
SALINATION
OFF- FARM costs larger than on-site cost of erosion
LAND use policy
urban
agriculture
forestry
wildlife
market cannot allocate land for best and highest value of use