Thierry Bréchet, Carmen Camacho, and Vladimir M. Veliov
This chapter extends the use of integrated assessment models (IAMs) by defining rational policies based on predictive control and adaptive behavior. After a review of the main IAMs, the concept of Model Predictive Nash Equilibrium (MPNE) is introduced within a general model involving heterogeneous economic agents operating in (and interfering with) a common environment. This concept captures the fact that agents do not have a perfect foresight for several ingredients of the economy and the environment. The canonical IAM (DICE) is used as a benchmark. The concept of MPNE is then enhanced with adaptive learning about the environmental dynamics and the damages caused by global warming. The approach is illustrated by some numerical experiments in a two-region setting.
Roger Claassen, Joseph Cooper, Cristina Salvioni, and Marcella Veronesi
Although agri-environmental programs have a long history in the United States and the European Union, such programs began to play a larger role in federal farm policies in the 1980s, in part due to greater concern about environmental damage from agricultural production. Both regions rely primarily on a mixture of three types of policy mechanisms to address agri-environmental issues: voluntary incentive-based programs, regulatory programs, and cross-compliance programs. This chapter provides an overview and comparison of EU and US agri-environmental programs. It then reviews what is known about the environmental and land use impacts of these programs. The chapter also discusses US and EU data sources that are key to analysis of agri-environmental programs and their land use impacts.
Salomón Salcedo, Fernando Soto-Baquero, José Graziano Da Silva, Rodrigo Castañeda Sepúlveda, and Sergio Gómez Echenique
Structural reforms implemented at both the macroeconomic and sector levels beginning in the 1980s played a fundamental role in the formation of Latin America's heterogeneous agricultural sector. Nearly all countries in the region embraced the same reform principles. Typically, these reforms saw unilateral trade liberalization, the elimination of subsidies, the privatization or closure of state-owned firms, the dismantling of research and extension institutions or a significant curtailment of their activities, and the deregulation of markets for agricultural goods and services. This chapter reviews these reforms, the challenges each country has faced in their implementation, and their impacts on the agriculture sectors of Latin American countries, and also considers the role of the state in agriculture and rural development.
Carlos José Caetano Bacha
This chapter analyzes the evolution of agriculture in Brazil from the early sixteenth century until the second decade of the twenty-first century. It focuses on seven domestic and external conditioning factors that have stimulated and supported the sector’s expansion in Brazil. These factors and the way that they have impacted agricultural expansion and will continue to drive Brazil’s agricultural sector for at least the next two decades. Given the availability of fallow arable land, at current productivity levels, this idle area could be used to double crop production. The transference of road operation to the regulated private sector will lead to improved road surfaces and maintenance, thereby facilitating the transportation of agricultural production to exporting ports. The reduction of agricultural sector subsidies and the increased forest conservation efforts by the European Union should improve Brazilian agriculture’s competitive position in many foreign markets currently served by EU farmers. The increasing share of Brazil’s agricultural production sold in world markets makes the country’s agricultural sector more vulnerable than ever to uncontrollable outside forces. World economic growth, especially that of China and the European countries, is a necessity if the Brazilian agricultural sector is to continue expanding and improving efficiencies. Most Brazilian agricultural inputs continue to be produced by foreign companies or their Brazilian subsidiaries. These overseas entities are a very strong force in the domestic inputs market and represent another uncontrollable factor that affects local farmers’ earnings and Brazil’s balance of trade.
Ousmane Badiane and Tsitsi Makombe
This chapter reviews the evolution of development theory and practice, the role of agriculture therein, and the pace of structural transformation in Africa over the last 50 years. The evolution has involved shifting roles of industry versus agriculture and that of government and the public sector versus markets and the private sector. Government intervention in favor of industrialization in the 1960s and 1970s resulted in the neglect of agriculture, poor growth performance, and a productivity-reducing structural transformation, characterized by an increasing concentration of low productivity labor in the informal service sector. The chapter suggests a move away from the dual economy to a three-dimensional model that pays greater attention to the large informal segment of the service sector. A successful transformation will require accelerated agricultural productivity growth, a modernized informal service sector, and effective industrialization strategies, with balanced roles for government, markets, and the private sector, all supported by country-led, evidence-based strategies.
Applying Experiments to Land Economics: Public Information and Auction Efficiency in Ecosystem Service Markets
Kent D. Messer, Joshua M. Duke, and Lori Lynch
The use of laboratory and field economic experiments to explore issues in land economics is increasingly popular as researchers identify problems that cannot be adequately addressed by traditional economic theory or empirical techniques. This article reviews this area’s growing literature as well as offers a framework to understand the trade-offs between issues of experimental control, problem context, and representativeness of participants. The key experiment design elements related to land economics are discussed. These elements are then illustrated by a study of the efficiency of reverse auctions for land conservation given different structures of private and public information. The study results suggest that different levels of public information affect sellers’ bidding behavior as well as competitiveness. Overbidding and too little market competition leads to significant loss of efficiency. These results have implications to how to design ecosystem service market cost effectively.
Edwin S. Mills
This chapter examines the functions of and prospects for large metropolitan areas (MAs) in the United States. It argues that the high cost of transporting people and goods is a necessary, but not sufficient condition for MAs. Economies of scale and scope and the technical ability to substitute structures for land provide cost advantages to firms located in MAs. The factors that limit the sizes of the largest MAs include the size and geography of the country, the limited demand for commodities and services produced in the MA, congestion and pollution, and social issues such as crime, homelessness, poverty, illegitimacy, racial tensions, and other forms of alienation that increase with MA size. Because of these limiting factors, the largest US MAs are expected to grow at slower rates than the US population in coming decades, whereas suburbs will continue to experience rapid growth.
Elena G. Irwin and Douglas H. Wrenn
This chapter provides a targeted review and assessment of current empirical methods most commonly used in economics to model spatially explicit land use and land use change. Empirical models are broadly defined as those that use data on land use and the underlying demand and supply processes to specify model parameters in some way. Four main types of modeling methods are considered: reduced-form econometric, structural econometric, spatial equilibrium simulation, and agent-based simulation. Key strengths and weaknesses of each method are discussed, and the applicability of each method for answering various research questions, including policy scenarios, is illustrated with a few recent examples from the literature. The chapter concludes with a discussion of potential complementarities among these various approaches and several critical research gaps.
Ottmar Edenhofer, Christian Flachsland, Michael Jakob, and Kai Lessmann
This chapter analyzes global climate policy as the problem of transforming governance of the atmosphere from an open-access into a global commons regime. This involves several challenges. First, setting an atmospheric stabilization goal requires balancing risks of climate change and risks of mitigation. Second, limiting the atmospheric disposal space for carbon devalues fossil resources and creates a novel climate rent, thus raising distributional issues. Third, policy instrument choice needs to consider the supply side dynamics of global fossil resource markets. Fourth, global climate policy entails strong free-riding incentives. The article reviews incentives for unilateral action and policy instruments as well as alternative conceptualizations of the emissions game that may somewhat alleviate this collective action problem. Finally, the literature on fiscal federalism and fiscal decentralization is considered, promising novel perspectives on designing an efficient decentralized governance regime of the atmospheric commons.
Stéphan Marette and Jutta Roosen
This article traces consumers' reluctance toward new technologies in the food domain and the nature of controversies. It argues that there are economic considerations in discussion of public policy on controversies. This article seeks to address the issues of controversy, the market concerns by such problems, and the reasons that controversies have become so prominent in many food markets. It further clarifies how to approach the question of an optimal policy by studying when a regulator should promote labels compared to other tools such as standards or a ban. This article presents some of the main contributions in both the empirical and theoretical literature, so as to provide economists or policymakers with resources and help to inform their decisions. It then discusses methods of quantifying the welfare impact of a ban or label on the controversial good. It concludes with a discussion of the implications for public policy.
Geraldo B. Martha Jr. and Eliseu Alves
Brazilian agriculture reinvented itself by targeting a science-based approach. Embrapa, the research arm of the Brazilian Ministry of Agriculture, is recognized as key in this process. A set of characteristics—public corporation model; scale of operation at national level; spatial decentralization; specialized research units; strong focus in human capital; a vision of an agriculture based on science and technology—explains Embrapa’s strength and achievements. Looking ahead, agricultural production needs to increase at least at the same pace of demand. Otherwise, prices will increase, and the poor will suffer the greatest impact. One of the greatest barriers to ensure modern technology will be more broadly and effectively adopted is market imperfection, which alters relative prices and the returns to investment in technologies. Reducing market imperfections is a necessary condition for expanding production in a more inclusive way, and to increase the effectiveness of policies targeting technology adoption by farmers.
Alexander A. Golub, Mikhail Kozeltsev, Alexander Martusevich, and Elena Strukova
The chapter considers improvements of environmental regulation as an important precondition for steady economic growth in Russia. Estimated costs of urban air pollution in Russia reach 4–5 percent of GDP. Human health risk constitutes the single largest part of environmental damage from air pollution in the country. We provide a detailed account for costs of environmental pollution, discuss the history of environmental regulation in Russia, and outline a way forward with key principles and recommendations for reform. Environmental regulation should address externalities and create explicit or implicit price of pollution to send market signals for private and public capital to be deployed into new technologies and shift to a “greener” (sustainable) and more inclusive economic growth. Risk indicators could be a central element for setting emission targets. A risk-based approach to environmental regulation can be complemented by a tax imposed on energy or, better yet, on CO2 emission.
Helen H. Jensen
This article provides an overview of the changes in nutrient content of the food supply in the United States and then describes core concepts used in the assessment of the adequacy of (or excess in) diets. Factors that affect nutrient availability in the food supply—such as the convergence of dietary patterns and food production and processing and distribution technologies—affect nutrient content. The article also discusses the fortification of food products and technological interventions to change the nutritional content of available foods. This has important implications for health. Economic factors play an important role in determining the available nutrients in the food supply. Finally, the article concludes that understanding the strength of consumer preference, and changes in preference across income levels, offers the opportunity to tie foods more closely to health outcomes.
Jeffrey D. Sachs
The problem of climate change is typically discussed as a problem of intergenerational tradeoffs. Typically, it is supposed that the current generations must make sacrifices today for the improved well-being of future generations. The case for climate change mitigation becomes a question of the balancing of current and future well-being, for example, according to a social discount factor. Though this approach is common, the perspective is too narrow. By using intergenerational fiscal policy, it may be possible to fund climate change mitigation with public debt, so that in effect future generations bear both the costs and the benefits of climate change mitigation. In this way, the social discount rate is not relevant. What is relevant is whether future generations would indeed be willing to pay the price of mitigation in return for reduced climate change. The current generation must act as a steward for future generations, assessing whether future generations would (or should) be willing to bear the costs of mitigation. If so, today’s generation would undertake mitigation actions, while leaving future generations with a higher stock of public debt to service.
This chapter gives a brief survey of dynamic games in macro models of climate change and, then, studies a simple endogenous growth model that includes an energy balance model. The world is composed of heterogeneous regions that differ with respect to their production technologies and with respect to the damages they suffer from climate change. The government in each region sets the abatement share such that inter temporal welfare is maximized. The analysis shows that less developed countries with more polluting technologies and higher damages from climate change should spend a higher share of GDP for abatement. But, nevertheless, these countries may still emit more greenhouse gases than countries with cleaner technologies and smaller damages. This holds both for the non-cooperative as well as for the cooperative world. Poor regions profit most from cooperation compared to the non-cooperative case
Frank Ackerman and Elizabeth A. Stanton
Optimistic views of climate impacts on agriculture, drawing on 1990s research, have helped to justify relatively complacent approaches to climate policy. Newer research has identified more ominous climate threats to agriculture—calling for a revised perspective on climate policy. This chapter reviews three categories of climate impacts on agriculture. First, carbon fertilization, although still seen as a benefit to most crops, is now estimated to be smaller than in earlier research. Second, the effect of temperature increases is now recognized to involve thresholds, beyond which yields per hectare will rapidly decline. Finally, changes in precipitation can be crucial—not only in cases of drought, but also in subtler shifts in timing and intensity of rainfall. Response to the climate crisis in agriculture will require adaptation, via the creation of heat-resistant and drought-resistant crops and cultivars, and reduction in greenhouse gas emissions as rapidly as possible, to limit future climate-related damages.
Average temperatures in the Earth’s atmosphere have begun an upward trend that is largely irreversible over the next century, regardless of climate policy options currently under discussion. With large coastal populations and extensive reliance on tropical and snow-fed agrifood systems, the Pacific Rim faces momentous challenges from climate risk. This chapter reviews conceptual issues, evidence, and policy options for addressing regional climate risk.
This chapter reviews our existing state of knowledge on the threshold behavior of Earth’s climate system, and examines fluctuations in weather system attributed to greenhouse-induced climate change. The chapter posits that the extreme perturbations observed in natural physical systems provide “weak indicators” of nontrivial losses from climate change. Even when conclusive scientific proof of the precise nature and extent of losses in the future may be patchy, and may fall short of providing the necessary conditions for justifying strong interventions, the “weak indicators” may provide the sufficient conditions for regulation. The notion of “precautionary principle” is invoked in this regard to argue that when probabilities of catastrophic losses are nonzero, no matter how small they are, it is sensible to err on the side of caution.
This chapter reviews the literature on climate-friendly technological change, with a focus on lessons relevant to developing countries. I begin by discussing the sources of environmental innovation. Given that most innovation is concentrated in a few rich countries, this leads to a discussion of the remaining role for lower-income countries, followed by a discussion of technology transfer. Because of the importance of market failures, I then discuss the role of both technology policy and environmental policy for promoting environmentally friendly technological change. The review concludes with a discussion of both the implications for developing countries and suggestions for future research.
Robert J. Johnston, Stephen K. Swallow, Dana Marie Bauer, Emi Uchida, and Christopher M. Anderson
This chapter describes methods, challenges, and prospects involved in the evaluation of linkages among ecosystem services, land use, and economic values. It begins with a discussion of current research devoted to the analysis, quantification, and valuation of ecosystem services related to land use. This is followed by a review of relationships between methods used for these analyses and the accuracy, precision, and relevance of empirical results. The chapter concludes with two illustrative applications that elucidate some of the challenges faced when linking ecosystem services to land use, as well as the use of resulting information to guide policy. The first application outlines the use of a bioeconomic model to inform land use controls based on ecosystem service provision. The second application illustrates potential mechanisms to incorporate ecosystem service values into landowner choices through the development of prospective payments for ecosystem services.