Kenneth A. Baerenklau

A Finite Mixture Logit Model of Recreational Angling with Serially Correlated Random Utility

This article examines two issues concerning the trip-taking behavior of recreational anglers over the course of a season. The first is whether the random component of trip utility is serially correlated across trip occasions. The second is the heterogeneity of preferences among anglers. Recent research has examined heterogeneity among recreational trip-takers using random parameters models. In this article, the population of anglers is, instead, cast as a collection of several subpopulations distinguished by angler preferences, and the method of finite mixtures is used to identify these subpopulations. Copyright 2002, Oxford University Press.

Toward an Understanding of Technology Adoption: Risk, Learning, and Neighborhood Effects

Agricultural pollution frequently is addressed through economic incentives for adopting alternative management practices. Designing efficient incentives requires understanding technology adoption behavior. This study estimates an adoption model incorporating risk preferences, endogenous learning, and peer-group influence to examine the importance of these behavioral drivers. Results suggest risk preferences and learning are key determinants, and that peer-group influence is less relevant. Thus the impact of a policy may depend more on the ability of the incentive to compensate producers for anticipated losses, and the extent to which information is shared, rather than on the “bandwagon” effect produced by early adopters or targeted incentives. (JEL Q21)

Dynamics of Agricultural Technology Adoption: Age Structure, Reversibility, and Uncertainty

We develop a dynamic model of technology adoption that generalizes previous literature by incorporating technology age, reversible investment, variable inputs and outputs, and stochastic prices. The model is calibrated for irrigated cotton production in California. Optimal investment exhibits a significant vintage capital effect which provides a new candidate explanation for delayed technology diffusion. We show that the hurdle rate derived by option value models can be partially explained by the assumption of irreversible investment, and simulations demonstrate this assumption has regional policy relevance. Uncertainty affects optimal investment but has a declining effect with technology age.

Land use/land cover change dynamics and drivers in a low-grade marginal coffee growing region of Veracruz, Mexico

In the state of Veracruz, Mexico, lowland and marginal coffee growing regions have been particularly vulnerable since the 1989 coffee crisis. Government programs have promoted production diversification as a strategy to improve local incomes and conserve environmentally beneficial shade-tree coffee agroforests. We present results on land use/land cover dynamics in the municipality of Zozocolco de Hidalgo from 1973 to 2006. The municipality is recognized for its indigenous population and poverty, and currently, diversification efforts are being implemented. Our study combines remote sensing and GIS analyses, binary logistic regression and econometric modeling, as well as socioeconomic surveys to evaluate land use/land cover change (LULCC) dynamics and explore potential environmental and socioeconomic drivers. Results show that tree cover and coffee agroforests had largely been conserved during the first decade after the coffee crisis. But, recent trends indicate loss of tree cover in coffee agroforests and their conversion mostly to pasture. Land use/land cover drivers are largely explained by spatially explicit environmental variables such as slope and elevation. Relevant socioeconomic variables such as distance to markets and land use profitability were not significantly related to land use changes in Zozocolco. Surveys revealed that many households had converted coffee agroforests to pasture or agriculture in the past decade and others intended on renting or selling their agroforest plots, mostly for conversion to pasture. Diversification programs may not be sufficient to stem deforestation in lowland and marginal coffee growing regions. Moreover, information about locally varying socioeconomic and cultural contexts needs to be strongly considered in order to formulate effective strategies.

The Residential Water Demand Effect of Increasing Block Rate Water Budgets

We investigate the effect of introducing a fiscally neutral increasing block rate water budget price structure on residential water demand. We estimate that demand was reduced by around 17%, although the reduction was achieved gradually over more than three years. As intermediate steps we derive estimates of price and income elasticities that rely only on longitudinal variability. We investigate how different subpopulations responded to the pricing change and find evidence that marginal, rather than average, prices may be driving consumption. We also derive alternative rate structures that might have been implemented, and assess their estimated demand effects. (JEL Q25)

Costs and benefits of capturing urban runoff with competitive bidding for decentralized best management practices

[1] Urban storm water runoff is both a source of pollution and a potentially valuable resource. Centralized facilities traditionally have been used to manage runoff. Decentralized best management practice (BMP) options may be able to avoid the costs of purchasing expensive urban land needed for centralized facilities. We investigate the cost effectiveness of implementing BMPs in a Los Angeles area watershed with two voluntary incentive mechanisms: competitive bidding and a fixed subsidy. The subsidy mechanism has lower BMP placement costs but generates relatively large excess profits for landowners. The bidding mechanism has higher BMP placement costs but generates smaller excess profits and tends to be more cost effective for the regulator, particularly at higher runoff capture levels. We also compare the costs of bidding and centralized alternatives and find that the bidding alternative is significantly less costly than a centralized alternative for a range of storm water capture goals. Finally, we examine the value of infiltrated storm water and find that it is up to 38% of total BMP costs.

Fundamentals of estimating the net benefits of ecosystem preservation: the case of the Salton Sea

This article, both theoretical and methodological in nature, argues the potential merits of using a net benefits’ framework as a tool to aid policy makers in their efforts to compare Salton Sea restoration alternatives and inform the public as to the potential magnitude and distribution of trade-offs associated with each alternative. A net benefits’ approach can provide a more accurate comparison and evaluation of the potential net returns from public spending on Salton Sea restoration than what would be provided under the suggested criteria of current legislative mandates. Furthermore, a net benefits’ framework provides a more lucid and systematic accounting framework by which to enumerate the full array of benefits and costs of each alternative for policy analysis. Finally, net benefits’ analysis serves to add transparency to the decision-making process so that the public gains an understanding of how its scarce resources, including both financial and natural capital, are being appropriated. Additionally, we illustrate and emphasize the importance of estimating the non-market values associated with many of the ecosystem services provided by the Salton Sea and describe the major techniques that do so.

Regional Economics and Management in Closed Drainage Basins

How to manage salinity and drainage issues in a semi-arid region that receives surface water imports, is subject to a saline, high water table, and does not have an outlet for salts and drainage water? Options include source control, land retirement, water table controls, and drainage water reuse. The analyses suggest that agricultural production in such a region is sustainable over decadal periods. High levels of productivity and profitability can be maintained over policy-relevant time horizons, but as salts are imported into the region and if groundwater reuse just re-circulates salts in the system over reasonable time scales, it is physically certain that reuse cannot be relied upon forever because the water table salt concentration eventually will increase, absent external drainage.

An Exposition of Structural Estimation of Discrete Dynamic Decision Processes

In the analysis of dynamic decision problems, the vast majority of the literature has focused on normative aspects: what should a resource manager do to maximize a particular objective function? Rarely have resource economists attempted to answer the positive question: what decision problem does a resource manager actually solve? There are several candidate explanations for this emphasis on normative modeling, but in this chapter we take the perspective that although structural estimation of discrete dynamic decision problems is not especially difficult, it is difficult enough that most analysts require some explanation of why they should bother with it at all. We develop a general model of a discrete dynamic decision problem, distill it to a tractable form, and present the estimation methodology. We then provide an empirical example and investigate the implications of using a reduced-form static model of behavior when the underlying data-generating process is dynamic.

Have Chinese water pricing reforms reduced urban residential water demand

Author(s): Zhang, B; Fang, KH; Baerenklau, KA | Abstract: