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- Volume 9, 2017
Annual Review of Resource Economics - Volume 9, 2017
Volume 9, 2017
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A Conversation with Emery Neal Castle
Vol. 9 (2017), pp. 1–12More LessThis article presents the transcript of an interview with the eminent economist, Emery Neal Castle. Emery discusses his youth in rural Kansas and how it shaped him and his career. After several years in the US Army Air Force during World War II, Emery returned to Kansas State University for his undergraduate studies and then completed his PhD at Iowa State University. He eventually landed at Oregon State University (OSU) in the mid-1950s, where he taught farm management and developed early courses in water resource economics. Emery and colleagues nurtured what became a world-renowned resource economics program at OSU. Emery also spent a decade running the nonprofit public policy research organization Resources for the Future in Washington, DC. Throughout his long career, Emery made significant contributions to three subfields of applied economics: farm management, resource economics, and rural studies. Emery has received numerous awards for his impact on the profession and the agricultural economy.
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Economics of US State and Local Regulation of Farm Practices, with Emphasis on Restrictions of Interstate Trade
Vol. 9 (2017), pp. 13–31More LessThis review focuses on the economics of policies in US states (or localities) that have regulated farm practices and related behavior. Some of these policies represent long-standing policies to govern the nature of farm organization, such as regulation of corporate ownership, investment, or organization. Other more recent policies attempt to affect specific scientific innovations, such as the use of seeds developed using modern biology (e.g., foods from genetically modified organisms). Another recent group of state laws and regulations addresses treatment of farm animals. Finally, treatment of the production and marketing of marijuana is the most recent state agricultural regulation to spark widespread interest and controversy. State and local regulations of farm practices are of broad practical interest because they affect markets beyond their jurisdictions. Broad concerns also follow if the regulations set legal or political precedents, or when rules apply to farm practices in outside jurisdictions.
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Certification Mechanisms for Credence Attributes of Foods: Does It Matter Who Provides Diagnosis?
Vol. 9 (2017), pp. 33–51More LessCredence goods markets are subject to failure because consumers are unable to punish fraudulent experts who diagnose and supply treatment, and they lack the technical expertise with which to verify the quality of treatment actually offered. The focus of research in agricultural economics has been almost entirely on how labeling and certification of food products that contain credence attributes resolve the lemons problem. This ignores the crucial role that firms, nongovernmental organizations, or government regulatory agencies, acting either independently or jointly as experts, play in the process of diagnosis and treatment in credence goods markets. This is important if experts fail to act in good faith through their diagnosis and treatment.
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Intellectual Property Rights and the Ascent of Proprietary Innovation in Agriculture
Vol. 9 (2017), pp. 53–74More LessBiological innovations in agriculture did not enjoy protection by formal intellectual property rights (IPRs) for a long time, but the recent trend has been one of considerable broadening and strengthening of these rights. We document the nature and evolution of these IPRs and provide an assessment of their impacts on innovation. We integrate elements of the institutional history of plant IPRs with a discussion of the relevant economic theory and a review of applicable empirical evidence. Throughout this review, we highlight how the experience of biological innovation mirrors or differs from the broader literature on IPRs and innovation. We conclude with some considerations on the relationship between IPRs, market structure, and the pricing of proprietary inputs in agriculture.
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The Economics of Farm Animal Welfare
Vol. 9 (2017), pp. 75–94More LessThis article reviews the literature on the economics of farm animal welfare. It starts with the challenge of defining and measuring animal welfare. Subsequently, the demand for farm animal welfare is evaluated from both the citizens’ perspective and the consumers’ perspective. The much-cited preference gap in between these perspectives constitutes a dilemma for the governance of animal welfare. Literature on the supply of farm animal welfare discusses the implications of enhancing farm animal welfare for production cost. The linkages between farm structure, farm technology, and animal welfare are discussed, and the frequently voiced hypothesis that smaller and more traditional farms automatically imply higher farm animal welfare levels is rejected. We examine the central challenge to the governance of farm animal welfare: its effects on competitiveness and trade. We also discuss objectives, governance instruments, the interplay of different policy instruments, and how to combine them for an effective and efficient strategy for farm animal welfare.
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Can Water Quality Trading Fix the Agricultural Nonpoint Source Problem?
Vol. 9 (2017), pp. 95–116More LessPolicy analysts and government agencies promote a particular form of what they term water quality trading as a means to address the most vexing obstacle to meeting water quality standards: reducing nutrient pollutants from agricultural nonpoint sources. However, agricultural nonpoint sources’ participation in water quality trading programs will only make limited contributions to lowering overall pollutant loads. We argue that economists need to more clearly articulate the limitations of current and proposed water quality trading programs as a water quality management strategy. A new generation of market-like incentive policies will be necessary to make significant progress in reducing agricultural nonpoint source loads.
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Managing Climate Change Under Uncertainty: Recursive Integrated Assessment at an Inflection Point
Derek Lemoine, and Ivan RudikVol. 9 (2017), pp. 117–142More LessUncertainty is critical to questions about climate change policy. Recently developed recursive integrated assessment models have become the primary tools for studying and quantifying the policy implications of uncertainty. We decompose the channels through which uncertainty affects policy and quantify them in a recursive extension of a benchmark integrated assessment model. The first wave of recursive models has made valuable, pioneering efforts at analyzing disparate sources of uncertainty. We argue that frontier numerical methods will enable the next generation of recursive models to better capture the information structure of climate change and to thereby ask new types of questions about climate change policy.
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Integrated Assessment Models of the Food, Energy, and Water Nexus: A Review and an Outline of Research Needs
Vol. 9 (2017), pp. 143–163More LessFood, energy, and water (FEW) systems play a fundamental role in determining societal health and economic well-being. However, current and expected changes in climate, population, and land use place these systems under considerable stress. To improve policies that target these challenges, this review highlights the need for integrating biophysical and economic models of the FEW nexus. We discuss advancements in modeling individual components that comprise this system and outline fundamental research needs for these individual areas as well as for model integration. Though great strides have been made in individual and integrated modeling, we nevertheless find a considerable need for improved integration of economic decision-making with biophysical models. We also highlight a need for improved model validation.
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Air and Water: Integrated Assessment Models for Multiple Media
Vol. 9 (2017), pp. 165–184More LessEconomics has long provided the theoretical framework for efficient pollution management. Efficiency requires equating marginal damages of pollution emissions to their marginal control costs. Recent advances in integrated assessment models (IAMs) highlight the importance of estimating and incorporating marginal damages into pollution policy design. Concurrently, this work has also advanced pollution management at the macroeconomic level. Marginal damages play a critical role in tracking total damages of pollution through national accounts. This article reviews these recent advances and discusses the status of IAMs for air and water pollution. Several exciting research challenges for future IAMs are discussed.
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Is the Environment Compatible with Growth? Adopting an Integrated Framework for Sustainability
Vol. 9 (2017), pp. 185–207More LessThis review develops an integrated baseline model to assess the trade-offs between the natural environment and economic growth. Consumption growth is considered in terms of both welfare and sustainability. The framework features capital accumulation and the sectoral structure of the economy as key elements to cope with resource scarcity and pollution. Model extensions that vary the number of sectors and inputs, change functional forms, and introduce poor input substitution and population growth are presented. This framework highlights the dual role of inputs as a source of environmental problems and part of the solution; it also addresses uncertainty and momentum effects. This review concludes that the environment and economic growth can be compatible but that small deviations from the optimal paths might entail unsustainable development. Critical issues for sustainability include insufficient foresight, increasing damage intensity, and suboptimal policy making, although population growth and poor input substitution are not necessarily precarious for future development.
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Adaptation to Climate Change
Vol. 9 (2017), pp. 209–230More LessThis article reviews the economic and analytical challenges of adaptation to climate change. Adaptation to climate risks that can no longer be avoided is an important aspect of the global response to climate change. Humans have always adapted to changing climatic conditions, and there is growing, if still patchy, evidence of widespread adaptation behavior. However, adaptation is not autonomous as sometimes claimed. It requires knowledge, planning, coordination, and foresight. There are important knowledge gaps, behavioral barriers, and market failures that hold back effective adaptation and require policy intervention. We identify the most urgent adaptation priorities, including areas where delay might lock in future vulnerability, and outline the decision-making challenges of adapting to an unknown future climate. We also highlight the strong interlinkages between adaptation and economic development, pointing out that decisions on industrial strategy, urban planning, and infrastructure investment all have a strong bearing on future vulnerability to climate change. We review the implications of these links for adaptation finance and what the literature tells us about the balance between adaptation and mitigation.
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Green Innovation and Market Power
Vol. 9 (2017), pp. 231–252More LessThis review summarizes the extant debate on the interplay between oligopolistic behavior and policy stimuli in determining firms’ green R&D efforts. It encompasses models based on the representative consumer and discrete choice approaches, under both Cournot and Bertrand competition. It also draws on the growing literature on environmental quality, green consumerism's ability to act as a net substitute for environmental policy and the Porter hypothesis. The review discusses empirical evidence on the main results of theoretical models. Several plausible directions for future research are also proposed.
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Green Industrial Policy in Emerging Markets
Vol. 9 (2017), pp. 253–274More LessIn this review, we discuss the challenges and opportunities associated with implementing green industrial policy in developing countries. These policies promote industries that produce green technologies and encourage traditional industries to produce goods and services in greener ways. We describe the experience in some emerging markets of voluntary programs to reduce emissions. Contrasting India and China's efforts to promote their solar photovoltaic industries, we also discuss the relative efficiency of promoting deployment versus promoting R&D. We also warn against expecting too much from policies that encourage renewables while governments simultaneously subsidize fossil fuels. The review discusses the potential of hybrid policies that combine command-and-control regulations targeted at the intensive margin for the largest polluters with market-based incentives that widen the reach of environmental regulations. We conclude with a discussion of how dismantling tariffs and facilitating foreign direct investment, ostensibly for nonenvironmental reasons, can have important environmental consequences.
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Measuring the Bioeconomy: Economics and Policies
Vol. 9 (2017), pp. 275–298More LessThe emerging concept of bioeconomy offers several opportunities to address societal challenges. The bioeconomy is mainly driven by advances in microbiology, which can be applied to various processes that use biological resources by shifting consumer preferences and by yielding new insights into resource constraints related to such issues as climate and land. Although expectations are high, less is known about the economic importance of the bioeconomy. This article reviews the methodological challenges of measuring the bioeconomy, the approaches used, and the outcomes reported. The results show that measuring the bioeconomy is still in its infancy and faces a number of methodological challenges. Bioeconomy cuts across sectors and therefore cannot be treated as a traditional sector in economics. Economics must catch up with bioeconomy realities. For a comprehensive economic assessment, information about bioeconomy resources, compounds, and product flows is required. We outline innovations in data storage and analytical methods that would realize bioeconomy opportunities and help guide policy.
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Spillovers from Conservation Programs
Vol. 9 (2017), pp. 299–315More LessConservation programs have increased significantly, as has the evaluation of their impacts. However, the evaluation of their potential impacts beyond program borders has been scarce. Such spillovers can significantly reduce or increase net impacts. In this review, we discuss how conservation programs might affect outcomes beyond their borders and present some evidence of when they have or have not. We focus on five major channels by which spillovers can arise: (1) input reallocation; (2) market prices; (3) learning; (4) nonpecuniary motivations; and (5) ecological-physical links. We highlight evidence for each channel and emphasize that estimates often may reflect multiple channels. Future research could test for spillovers within different contexts and could separate the effects of different channels.
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Asking Willingness-to-Accept Questions in Stated Preference Surveys: A Review and Research Agenda
Vol. 9 (2017), pp. 317–336More LessStated preference (SP) researchers have encountered an increasing number of policy problems for which a willingness-to-accept (WTA) compensation question would seem to be the most reasonable approach to structure the respondent's valuation choice task. However, most SP researchers are still reluctant to pose WTA questions to respondents due to concerns about reliability of responses and confusion about what contexts warrant a WTA question compared to a willingness-to-pay question. This review synthesizes the current literature, provides guidance on when and how to use WTA elicitation formats, and identifies research needs. We present a typology of valuation tasks that illustrates the situations in which WTA questions are appropriate and should be used to estimate welfare-theoretic measures of economic benefits—and when they should be avoided. We also discuss three different design issues that SP researchers need to consider when they use WTA questions: (a) elicitation of reference and status quo conditions, (b) incentive compatibility and private versus public goods, and (c) nonconforming responses. We conclude that good survey design makes it possible to ask respondents sensible WTA questions in many cases, yet several key research issues require attention.
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Household Response to Time-Varying Electricity Prices
Vol. 9 (2017), pp. 337–359More LessThe diffusion of smart metering technology and intermittent renewable electricity generation capacity makes the deployment of time-varying electricity rates increasingly feasible and important to the functioning of electricity grids. Such rates, which economists advocate to more efficiently match supply and demand, remain rare, though experiments assessing consumer responses are not. This review synthesizes evaluations of these experiments in the context of a theory of consumer inattention and adjustment costs that posits a role for automation technology to boost the short-run price elasticity of demand and affect demand-side reductions that can lower generation costs.
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Life Cycle Assessment for Economists
Vol. 9 (2017), pp. 361–381More LessLife cycle assessment (LCA) is a widely utilized technique to quantify inputs and emissions associated with the life cycle of a product, from raw materials extraction through the product's end-of-life. Given the basic economic principle of policy targeting, the case for focusing on emissions associated with a specific good as opposed to targeting each different externality needs development. This review identifies situations that merit a product life cycle approach in environmental regulation and then discusses the use of LCA with different types of policy instruments. We then discuss the methodological and implementation-related issues involved with using LCA as an economic decision aid as well as issues in designing regulations to control life cycle emissions. We conclude by identifying areas for future LCA research that are ripe for the application of microeconomic insights.
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Perceived Self-Efficacy, Poverty, and Economic Development
Vol. 9 (2017), pp. 383–404More LessTraditionally focused on external constraints, economists are increasingly recognizing the importance of internal constraints that reflect perceptions as much as reality. Perceived self-efficacy (PSE)—individuals’ perception of their domain-specific capabilities—fundamentally shapes these internal constraints and thereby drives economic behavior. Without sufficient PSE, individuals have little reason to invest greater effort or attempt anything new. Individuals with higher PSE set more ambitious goals, try harder, and persist more diligently. Such proactive engagement in perceiving and creating possibilities is often either ignored or implicitly assumed in simple optimization models. Growing evidence from psychology and economics suggests that PSE deserves greater attention. We review the theoretical and empirical literature on PSE with a focus on its relevance to poverty and economic development. We discuss promising avenues for future research at the interface of PSE and poverty as part of the broader frontier of behavioral development economics.
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Secondary Towns and Poverty Reduction: Refocusing the Urbanization Agenda
Vol. 9 (2017), pp. 405–419More LessThis review is framed around the exploration of a central hypothesis: A shift in public investment toward secondary towns from big cities will improve poverty reduction performance. Of course, the hypothesis raises many questions. What exactly is the dichotomy of secondary towns versus big cities? What is the evidence for the contribution of secondary towns versus cities to poverty reduction? What are the economic mechanisms for such a differential contribution, and how does policy interact with them? We find preliminary evidence and arguments in support of our hypothesis, but the impacts of policy on poverty are quite complex, even in simple settings. The question of whether a shift in investment to secondary towns reduces poverty more is an open area for research and policy analysis.
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Index Insurance for Developing Country Agriculture: A Reassessment
Vol. 9 (2017), pp. 421–438More LessWith uninsured risk representing a major hurdle to investment, productivity growth, and poverty reduction in developing country smallholder agriculture, index-based agricultural insurance has offered the promise of overcoming the hurdles of traditional indemnity-based insurance for this context. In spite of extensive experimentation, take-up has been disappointingly low without large and sustained subsidies. We show that existing constraints on take-up can partially be overcome using revised contract designs, advanced technology for better measurement, improved marketing, and better policy support. However, because index insurance is likely to remain expensive in that context, we suggest that improved index insurance be combined with stress tolerant seed varieties and new risk-oriented savings and credit products that build on the complementarities between what can be offered by index insurance and these other instruments to cope with shocks and manage risk.
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Transitioning Toward Nutrition-Sensitive Food Systems in Developing Countries
Vol. 9 (2017), pp. 439–459More LessA nutrition-sensitive food system is one that goes beyond staple grain productivity and places emphasis on the consumption of micronutrient-rich nonstaples through a variety of market and nonmarket interventions. A nutrition-sensitive approach not only considers policies related to macrolevel availability and access to nutritious food, but it also focuses on household- and individual-level determinants of improved nutrition. In addition to agriculture, intrahousehold equity, behavior change, food safety, and access to clean water and sanitation are integral components of the food system. This article provides a detailed review, from an economic perspective, on the multisectoral pathways through which agriculture influences nutrition. A critical challenge is to identify and implement food and nutrition policies that are appropriate to the particular stage of structural transformation in the country of concern.
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