Benjamin M. Gramig

Livestock Disease Indemnity Design When Moral Hazard Is Followed by Adverse Selection

Averting or limiting the outbreak of infectious disease in domestic livestock herds is an economic and potential human health issue that involves the government and individual livestock producers. Producers have private information about preventive biosecurity measures they adopt on their farms prior to outbreak (ex ante moral hazard), and following outbreak they possess private information about whether or not their herd is infected (ex post adverse selection). We investigate how indemnity payments can be designed to provide incentives to producers to invest in biosecurity and report infection to the government in the presence of asymmetric information. We compare the relative magnitude of the first- and second-best levels of biosecurity investment and indemnity payments to demonstrate the tradeoff between risk sharing and efficiency, and we discuss the implications for status quo U.S. policy. Copyright 2008, Oxford University Press.

Why Metrics Matter: Evaluating Policy Choices for Reactive Nitrogen in the Chesapeake Bay Watershed †

Despite major efforts, the reduction of reactive nitrogen (Nr) using traditional metrics and policy tools for the Chesapeake Bay has slowed in recent years. In this article, we apply the concept of the Nitrogen Cascade to the chemically dynamic nature and multiple sources of Nr to examine the temporal and spatial movement of different forms of Nr through multiple ecosystems and media. We also demonstrate the benefit of using more than the traditional mass fluxes to set criteria for action. The use of multiple metrics provides additional information about where the most effective intervention point might be. Utilizing damage costs or mortality metrics demonstrates that even though the mass fluxes to the atmosphere are lower than direct releases to terrestrial and aquatic ecosystems, total damage costs to all ecosystems and health are higher because of the cascade of Nr and the associated damages, and because they exact a higher human health cost. Abatement costs for reducing Nr releases into the air are also lower. These findings have major implications for the use of multiple metrics and the additional benefits of expanding the scope of concern beyond the Bay itself and support improved coordination between the Clean Air and Clean Water Acts while restoring the Chesapeake Bay.

Environmental and Economic Trade-Offs in a Watershed When Using Corn Stover for Bioenergy

There is an abundant supply of corn stover in the United States that remains after grain is harvested which could be used to produce cellulosic biofuels mandated by the current Renewable Fuel Standard (RFS). This research integrates the Soil Water Assessment Tool (SWAT) watershed model and the DayCent biogeochemical model to investigate water quality and soil greenhouse gas flux that results when corn stover is collected at two different rates from corn-soybean and continuous corn crop rotations with and without tillage. Multiobjective watershed-scale optimizations are performed for individual pollutant-cost minimization criteria based on the economic cost of each cropping practice and (individually) the effect on nitrate, total phosphorus, sediment, or global warming potential. We compare these results with a purely economic optimization that maximizes stover production at the lowest cost without taking environmental impacts into account. We illustrate trade-offs between cost and different environmental performance criteria, assuming that nutrients contained in any stover collected must be replaced. The key finding is that stover collection using the practices modeled results in increased contributions to atmospheric greenhouse gases while reducing nitrate and total phosphorus loading to the watershed relative to the status quo without stover collection. Stover collection increases sediment loading to waterways relative to when no stover is removed for each crop rotation-tillage practice combination considered; no-till in combination with stover collection reduced sediment loading below baseline conditions without stover collection. Our results suggest that additional information is needed about (i) the level of nutrient replacement required to maintain grain yields and (ii) cost-effective management practices capable of reducing soil erosion when crop residues are removed in order to avoid contributions to climate change and water quality impairments as a result of using corn stover to satisfy the RFS.

Jointly Determined Livestock Disease Dynamics and Decentralised Economic Behaviour

A dynamic model of livestock disease and decentralised economic behaviour is constructed as a jointly determined system. By accounting for feedbacks between behavioural choices and disease outcomes, the model captures the endogenous nature of infection risks. Government mandated testing of livestock herds and how private biosecurity incentives are affected by the structure of disease eradication polices are considered. How well disease control policies are targeted affects their effectiveness and may result in farmers substituting government testing and disease surveillance for private biosecurity. Numerical simulation results demonstrate that failing to account for feedbacks between the disease ecology and economic systems may overestimate the effectiveness of government disease control policies.

Wildlife conservation payments to address habitat fragmentation and disease risks

We build a stylized model to gain insights into the application of conservation payments to protect endangered species in the face of wildlife-livestock disease risks and habitat fragmentation. Greater connectivity of habitat creates an endogenous trade-off. More connectedness ups the chance that populations of endangered species will grow more rapidly; however, greater connectivity also increases the likelihood that diseases will spread more quickly. We analyze subsidies for both habitat connectedness and livestock vaccination. We find the cost-effective policy is to initially subsidize habitat connectivity rather than vaccinations; this increases habitat contiguousness, which eventually also increases disease risks. Once habitat is sufficiently connected, disease risks increase to such a degree to make a vaccination subsidy worthwhile. Highly connected habitat requires nearly all the government budget be devoted to vaccination subsidies. The result of the conservation payments is significantly increased species abundance, for a wide range of initial levels of habitat connectedness.

Climate forecasts for corn producer decision making

AbstractCorn is the most widely grown crop in the Americas, with annual production in the United States of approximately 332 million metric tons. Improved climate forecasts, together with climate-related decision tools for corn producers based on these improved forecasts, could substantially reduce uncertainty and increase profitability for corn producers. The purpose of this paper is to acquaint climate information developers, climate information users, and climate researchers with an overview of weather conditions throughout the year that affect corn production as well as forecast content and timing needed by producers. The authors provide a graphic depicting the climate-informed decision cycle, which they call the climate forecast–decision cycle calendar for corn.

Farmers and conservation programs: Explaining differences in Environmental Quality Incentives Program applications between states

Despite its economic and social benefits, agriculture is now a leading source of water pollution in the United States. While significant research effort has attempted to understand adoption of conservation practices on agricultural lands, relatively little research has explored the operation of specific agri-environmental policies in the United States. This research attempts to gain an understanding of how differing agricultural and sociopolitical contexts across the United States influence attempted participation in national agricultural conservation programs. Application rates in the Environmental Quality Incentives Program (EQIP) differ across the 50 states, indicating potentially important differences in state setting that influence behavior of individual farm operators. A variety of agricultural and sociopolitical measures were included in a fractional logit model to assess factors contributing to varying rates of application to EQIP. Significant explanatory variables included high sales farm prevalence, tenancy rates, and views on federal environmental spending. There also appears to be a large regional effect, with states in the Southeast, Mountain West, and Northeast having higher application rates than those in the Corn Belt. The results of this analysis indicate that certain types of farmers are more likely to seek participation in this large agricultural conservation program. Further research is needed to assess the role of government agencies (federal, state, and local) in influencing participation rates and what role individual political opinion may play in decisions related to federal cost share programs.

Farmers’ Supply Response, Price of Corn Residue, and Its Economic Viability as an Energy Feedstock

Previous economic analyses of energy from corn stover assumed yield reductions from residue removal (without nutrient replacement) and limited or no supply response by farmers to changes in the price of stover. We exploit agronomic and cost information from a randomized block design experiment to model and quantify farmers’ supply response to changes in relative prices of corn stover, corn grain, and soybean. We then couple this supply response with a model of a cost-minimizing processing plant. Results suggest that stover-based energy may be closer to economic viability than previously found. In addition, in areas where reductions in corn yield due to corn monoculture are small, processing plants may find optimal to pay a higher price for stover to induce farmers to adopt continuous corn because it reduces transportation cost. This suggests that such areas may experience changes in their land cover configuration if stover-based energy does become commercially viable.

Integrated Economic and Environmental Assessment of Cellulosic Biofuel Production in an Agricultural Watershed

SWAT watershed model simulated biomass yield and pollutant loadings were integrated with associated economic costs of farm production and transport to study two dedicated energy crops, switchgrass and Miscanthus, and corn stover, as feedstocks for a cellulosic biorefinery. A multi-level spatial optimization (MLSOPT) framework was employed to get spatially explicit cropping plans for a watershed under the assumption that the watershed supplies biomass to a hypothetical biorefinery considering both the biochemical and the thermochemical conversion pathways. Consistent with previous studies, the perennial grasses had higher biomass yield than corn stover, with considerably lower sediment, nitrogen, and phosphorus loadings, but their costs were higher. New insights were related to the tradeoffs between cost, feedstock production, and the level and form of environmental quality society faces as it implements the Renewable Fuel Standard. Economically, this involved calculating the farthest distance a biorefinery would be willing to drive to source corn residue before procuring a single unit of perennial grasses from productive agricultural soils.

Conservation Payments to Reduce Wildlife Habitat Fragmentation and Disease Risks

We investigate the challenges of using payments for environmental services (PES) to protect endangered species given habitat fragmentation in conjunction with disease risks from neighboring livestock. Using a bioeconomic model, we show how greater connectivity of habitat creates an endogenous trade-off. More connectedness both (1) increases growth of endangered species populations, while (2) simultaneously increasing the likelihood diseases will spread more quickly. We examine payments for habitat connectedness, livestock vaccination, and reduced movement of infected livestock. We find the cost-effective policy to first use subsidies to promote habitat contiguousness. Once habitat is sufficiently connected, disease risks increase to the point where disease-related subsidies become worthwhile. Highly connected habitat requires nearly all the government budget be devoted to disease prevention and control. The conservation payments result in significantly increased wildlife abundance, increased livestock health and abundance, and increased development opportunities.