Rodney B.W. Smith

Agglomeration bonus: an incentive mechanism to reunite fragmented habitat for biodiversity conservation

This paper examines an experiment conducted to explore a voluntary incentive mechanism, the agglomeration bonus, designed to protect endangered species and biodiversity by reuniting fragmented habitat across private land. The goal is to maximize habitat protection and minimize landowner resentment. The agglomeration bonus mechanism pays an extra bonus for every acre a landowner retires that borders on any other retired acre. The mechanism provides incentive for non-cooperative landowners to voluntarily create a contiguous reserve across their common border. A government agency’s role is to target the critical habitat, to integrate the agglomeration bonus into the compensation package, and to provide landowners the unconditional freedom to choose which acres to retire. The downside with the bonus, however, is that multiple Nash equilibria exist, which can be ranked by the level of habitat fragmentation. Our lab results show that a no-bonus mechanism always created fragmented habitat, whereas with the bonus, players found the first-best habitat reserve. Once pre-play communication and random pairings was introduced, players found the first-best outcome in nearly 92% of play.

The Conservation Reserve Program as a Least-Cost Land Retirement Mechanism

Mechanism design theory is used to characterize the properties of a least-cost CRP. If marginal land rents decrease with acres farmed then a least-cost CRP is a set of nonlinear price schedules. If marginal land rents are independent of acres farmed then an offer system constitutes a least-cost CRP. The least-cost offer system gives a useful estimate of the upper bound of a least-cost CRP. Empirical results suggest that a 34-million-acre CRP should have cost no more than

Water Markets and Third-Party Effects

1 billion per year.

Water shortages, intersectoral water allocation and economic growth: the case of China

We examine potential third-party effects arising from trading water from one region (rural) to another (urban). Using labor, water and heterogeneous land, rural agents produce a traded agricultural good and nontraded service good. Absent job market frictions, increased water trading improves per capita regional welfare, but aggregate service income can increase (decrease) while individual land rents decrease (increase). If labor experiences job market frictions, water trading can trigger socially inefficient land fallowing, and a decrease in per capita regional welfare. Simulation results confirm the no-job-market-friction model predictions.

Evaluating the economic impacts of water harvesting in Burkina Faso

Purpose - – The purpose of this paper is to investigate the economic impacts of intra- and inter-regional water reallocation on sectoral transformation and economic growth. Design/methodology/approach - – A multi-sector, Ramsey-type growth model is fit to Chinese data and used to perform policy experiments. Findings - – An intra-regional water reallocation increases per capita gross domestic product (GDP) by about 1.5 percent per year over the period 2000-2060. The aggregate potential welfare gain due to this reallocation is 1002.51 billion RMB. Transferring water from southern to northern China via the South-North Water Transfer Project, on average, has a negligible impact on per capita GDP over the period 2000-2060, but aggregate welfare increases by 557.23 billion RMB. Combining intra-regional and inter-regional water reallocations, on average, increases per capita GDP by 0.38 percent per year over the period and the aggregate welfare gain from this combination is 1148.06 billion RMB. Each policy scenario has implications for long-run regional production patterns: In an intra-regional reallocation scenario, Southern China produces almost 70 percent of aggregate GDP, in the inter-regional transfer it produces 58 percent of aggregate GDP, while in a combined intra/inter-regional reallocation it produces 55 percent of aggregate GDP. Originality/value - – This analysis can serve as a template for developing a useful planning tool that one can fit to national or regional data and use to examine a variety of policy relevant questions.

Barriers to Efficiency and the Privatisation of Township-Village Enterprises

Food security is an increasingly growing concern throughout sub-Saharan Africa. While agricultural output has expanded considerably during the past decade, it has not kept pace with population growth. One strategy to boost agricultural output in the absence of irrigation is water harvesting, various forms of which are commonly employed in Burkina Faso. Water harvesting typically consists of small scale agricultural production techniques that combine labor with indigenous environmental assets (e.g., mulch and soil) to aid in moisture retention. This paper estimates a quadratic production technology for millet and white sorghum mono-crops, and a directional output distance function for joint production of white sorghum and cowpea, with water harvesting use as an input. Results indicate that in millet monocropping and white sorghum monocropping, water harvesting typically increases yields by at least forty percent. Water harvesting also has a positive effect on sorghum and cowpea multi-cropping. These results provide useful insight on the economic benefits of water harvesting, and on the potential of water harvesting as a poverty reduction strategy throughout sub-Saharan Africa.

Lessons learned and linkages with national policies

Abstract Qian (2000) and others suggest that post-1994 tax and banking reforms in China, combined with the development of markets for allocating resources, influenced the economic performance of township-village enterprises (TVEs) and private enterprises (PEs). This paper uses Chinese provincial level data to search for evidence of advantages and/or disadvantages offered to TVEs and PEs before and after the 1994 reforms. We define a sectoral net income-based measure of overall efficiency and decompose the measure into components that highlight the existence of credit constraints, output target constraints and labour hiring constraints. The results offer empirical support for Qian and others explanation of why private enterprises eventually emerged as the dominant institution for allocating resources in post-1994 rural China.

The Three-Sector Ramsey Model

Linking biophysical aspects of ecosystems with human benefits through the notion of ecosystem services is essential to assess the trade-offs (ecological, socio-cultural, economic and monetary) involved in the loss of ecosystems and biodiversity in a clear and consistent manner. Any ecosystem assessment should be spatially and temporally explicit at scales meaningful for policy formation or interventions, inherently acknowledging that both ecological functioning and economic values are context, space and time specific. Any ecosystem assessment should first aim to determine the service delivery in biophysical terms, to provide solid ecological underpinning to the economic valuation or measurement with alternative metrics. Clearly delineating between functions, services and benefits is important to make ecosystem assessments more accessible to economic valuation, although no consensus has yet been reached on the classification. Ecosystem assessments should be set within the context of contrasting scenarios - recognising that both the values of ecosystem services and the costs of actions can be best measured as a function of changes between alternative options. In assessing trade-offs between alternative uses of ecosystems, the total bundle of ecosystem services provided by different conversion and management states should be included. Any valuation study should be fully aware of the „cost? side of the equation, as focus on benefits only ignores important societal costs like missed opportunities of alternative uses; this also allows for a more extensive range of societal values to be considered. Ecosystem assessments should integrate an analysis of risks and uncertainties, acknowledging the limitations of knowledge on the impacts of human actions on ecosystems and their services and on their importance to human well-being. In order to improve incentive structures and institutions, the different stakeholders - i.e. the beneficiaries of ecosystem services, those who are providing the services, those involved in or affected by the use, and the actors involved at different levels of decision-making - should be clearly identified, and decision making processes need to be transparent1. Integrating the Ecological and Economic Dimensions in Biodiversity and Ecosystem Service Valuation 2. Biodiversity, Ecosystems and Ecosystem Services 3. Measuring Biophysical Quantities and the Use of Indicators 4. The Socio-cultural Context of Ecosystem and Biodiversity Valuation 5. The Economics of Valuing Ecosystem Services and Biodiversity 6. Discounting, Ethics, and Options for Maintaining Biodiversity and Ecosystem Integrity 7. Lessons Learned and Linkages with National Policies Appendix 1: How the TEEB Framework Can be Applied: The Amazon Case Appendix 2: Matrix Tables for Wetland and Forest Ecosystems Appendix 3: Estimates of Monetary Values of Ecosystem ServicesAll ecosystems are shaped by people, directly or indirectly and all people, rich or poor, rural or urban, depend on the capacity of ecosystems to generate essential ecosystem services. In this sense, people and ecosystems are interdependent social-ecological systems. The ecosystem concept describes the interrelationships between living organisms (people included) and the non-living environment and provides a holistic approach to understanding the generation of services from an environment that both delivers benefits to and imposes costs on people. Variation in biological diversity relates to the operations of ecosystems in at least three ways: 1. increase in diversity often leads to an increase in productivity due to complementary traits among species for resource use, and productivity itself underpins many ecosystem services, 2. increased diversity leads to an increase in response diversity (range of traits related to how species within the same functional group respond to environmental drivers) resulting in less variability in functioning over time as environment changes, 3. idiosyncratic effects due to keystone species properties and unique trait-combinations which may result in a disproportional effect of losing one particular species compared to the effect of losing individual species at random. Ecosystems produce multiple services and these interact in complex ways, different services being interlinked, both negatively and positively. Delivery of many services will therefore vary in a correlated manner, but when an ecosystem is managed principally for the delivery of a single service (e.g. food production), other services are nearly always affected negatively. Ecosystems vary in their ability to buffer and adapt to both natural and anthropogenic changes as well as recover after changes (i.e. resilience). When subjected to severe change, ecosystems may cross thresholds and move into different and often less desirable ecological states or trajectories. A major challenge is how to design ecosystem management in ways that maintain resilience and avoids passing undesirable thresholds. There is clear evidence for a central role of biodiversity in the delivery of some – but not all - services, viewed individually. However, ecosystems need to be managed to deliver multiple services to sustain human well-being and also managed at the level of landscapes and seascapes in ways that avoid the passing of dangerous tipping-points. We can state with high certainty that maintaining functioning ecosystems capable of delivering multiple services requires a general approach to sustaining biodiversity, in the long-term also when a single service is the focus.For most resource allocation problems economists use a capital investment approach. Resources should be allocated to those investments yielding the highest rate of return, accounting for uncertainty, risk and the attitude of the investor toward risk. As illustrated in Figure 6.1, suppose an investor has a choice between letting a valuable tree grow at a rate of 5 per cent per year, or cutting the tree down, selling it and putting the money in the bank. Which decision is best depends on the rate of interest the bank pays. If the bank pays 6 per cent and the price of timber is constant the investor will earn more money by cutting the tree down and selling it, that is, by converting natural capital into financial capital. This simple example is a metaphor for the conversion of biodiversity and ecosystem services into other forms of capital. The shortcomings of this simple approach to valuing biodiversity and ecosystems include: (1) the irreversibility of biodiversity loss; (2) pure uncertainty as to the effects of such losses; (3) the difference between private investment decisions and the responsibilities of citizens of particular societies; (4) the implicit assumption.

The Two Sector Ramsey Model

This chapter develops a three-sector growth model with three factors of production. One factor is specific to a sector, and one sector’s output is a home-good, meaning it is not traded in international markets. The chapter builds upon the static three-sector model developed in Chapter 2, and the two sector Ramsey model presented in the previous chapter. The dynamic three-sector model is a convenient point of departure for developing policy models with more sectoral detail, and for studying various other aspects of economic growth that have received attention at least from the time of Arthur Lewis. The seminal work of Lewis (1954), further developed by Fei and Ranis (1961) emphasize the supply of surplus labor from the farm sector to the rest of the economy as an essential part of the growth process. This theme was also emphasized in the work of Jorgenson (1967). In spite of the renewed interest in growth theory in the 1980s, Matsuyama (1992) was among the first to develop a model of endogenous growth with two distinct sectors, agriculture and manufacturing.

Solution Methods in Transition Dynamics

This chapter presents the two-sector neoclassical growth model where the transition path of consumption and saving is determined by households optimizing over time, and where firms interact in a competitive market environment. The single sector version of this model can be traced to Ramsey(1928), and its refinements by Cass (1965) and Koopmans (1965). King and Rebelo (1993) study, numerically, the transitional dynamics of the model which they confront to several stylized factors of economic growth. Barro and Sala-i-Martin (2004) also provide a full treatment of the single sector model.