Natural Resources, the Environment and Agriculture

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Natural Resources,the Environmentand Agriculture

• Chapter 10

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Topics of Discussion

• Agriculture and the environment
• Economics of the environment
• Economics of resources in agriculture
• Government policies for agriculture, natural
  resourcs, and the environment

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Interactions with natural resources and the
environment
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Environmental and Natural Resources

• Natural resources are part of the environment
• Environment is a natural resource
• Environmental Economics
• Refers to the study of flows, such as pollution,
  that affect others
• Natural Resource Economics
• The study of natural assets that are valued for
  their productive capacity

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Agriculture and the Environment

• Water pollution
• Air pollution
• Global warming
• Other environmental impacts

Pages 212-216
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Water pollutants are known to cause cancer.
Agriculture is leading contributor to water
pollution in US.
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What are PCBs?

• Polychlorinated Biphenyl - a synthetic, organic
  chemical once widely used in electrical
  equipment, specialized hydraulic systems, heat
  transfer systems, and other industrial products.
  Highly toxic and a potent carcinogen
• PCBs were a common industrial discharge up around
  the 1980s and they are now a huge problem.
• Some companies paying billions of dollars to deal
  with these nasties

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The greenhouse effect is caused by an increase
in atmospheric gases that trap solar radiation,
gradually warming the earths surface.
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Temperature record over the past 150 years
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The latest science

• National Academy of Sciences, the warming trend
  in the global mean surface temperature
  observations during the past 20 years is
  undoubtedly real and is substantially greater
  than the average rate of warming in the 20th
  century.

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• August 17, 2000
• 10 Arctic scientists have reviewed nearly 40
  years of polar research Their new survey paints
  a picture broadly consistent with climate-model
  forecasts.
• Mark Serreze, the survey's lead author "Now, I'm
  definitely leaning very hard toward accepting the
  notion, although I haven't toppled yet."

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Other Environmental Issues

• Odor
• Can be a health hazard
• Can depress nearby property values
• Endangering plant and animal species
• Endangered Species Act (ESA)
• Agriculture is one of many forces that can
  threaten species by encroaching on or
  contaminating their habitat
• Open spaces and traditional landscape
• Other people move to these areas and pay premium
  prices for lots surrounded by farms and/or open
  spaces

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Economics of the Environment

• Does the environment has value?
• Demand and supply for environmental improvements
• WTP willingness to pay to decrease or abate
  pollution

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Efficient level of abatement as long as WTP is
greater than MC, societys net benefit can be
increased by increasing abatement.
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So will a market actually arise for environmental
improvements leading to a socially optimal
outcome?

• Unfortunately, the answer is no since the
  characteristics of efficient property rights
  usually are not satisfied for environmental
  goods.
• Property Rights privileges and limitations that
  are associated with the ownership of a resource.

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Efficient Property Rights

• Enforceability security of individual rights
• Without this, no one would buy a good because it
  can taken away from them without permission.
• Transferability can be transferred from one
  individual to another
• Without this, no market can arise because their
  sale is not allowed.
• Exclusivity all associated benefits and costs
  are received by only the owner of the asset
• Externalities consequences of the use or
  ownership of a resource that befall someone other
  than the owner
• E.g., farmers do not pay the cost that might be
  imposed on downstream anglers due to declining
  water quality.

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Efficiency and damage from externalities
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Figure Explanation

• Assume producing at Qm also causes pollution
• Neither producers nor consumers of good take
  these into account external to the market
• Social MC MCs MCmE
• additional cost at Qm Qm x E 235
• Net social benefits (234) (235) 4-5
• So net social benefits could be increased by
  supplying less of Q
• So with presence of externality - the free market
  will not achieve the socially efficient level of
  production

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Cost Effective Environmental Policies

• When negative externality exists, the free market
  will not lead to a socially efficient outcome.
• The issue of free-riding (e.g., fishermen could
  be organized and pay E to convince farmers to
  reduce their production farmers required to pay
  the fishermen for the right to pollute)
• As a result, government is frequently involved
  when externality problems arise.
• Due to difficulty of getting WTP and MC
  estimates, environmental govt standards are
  rarely set at socially efficient levels.

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Cost Effective Policies

• Command-and-Control policies
• Regulations on technology or restrictions on
  practices
• Does not take into account heterogeneity of
  polluters
• Taxes and subsidies
• Tax on pollution or subsidy for abatement
• Transferable rights
• Rights to pollute can be bought and sold by
  polluters, moving the permits to pollute to those
  firms for which abatement is most expensive
• Government can control overall level of pollution
  and leave the allocation up to the market

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Summary

• Economists play a role in designing policies that
  affect the environment and natural resources.
• Incentives matter when designing policies to
  achieve desired objectives.
• Agriculture impacts the environment through water
  pollution, air pollution, global warming among
  other ways.
• Government plays an active role in guiding and
  regulating the use of resources and impact on
  environment.

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Chapter 11 discusses other forms of governmental
intervention, including price and income supports