Date of Award

12-2004

Level of Access

Open-Access Thesis

Degree Name

Master of Science (MS)

Department

Resource Economics and Policy

Advisor

Timothy J. Dalton

Second Committee Member

Kathleen P. Bell

Third Committee Member

Stewart N. Smith

Abstract

Multifunctionality refers to the ability of agricultural systems to produce an array of non-market goods and services in addition to market commodities. This thesis focuses explicitly on the provision of environmental benefits, through reduced soil erosion and fertilizer applications, by agricultural producers. Soil erosion and nutrient contamination from agricultural production are the foremost contributors to ground and surface water degradation in the United States. Reducing their production implies gains in social welfare, but may generate significant private losses to producers. The objective of this analysis is to quantify the tradeoff between environmental improvements and producer welfare and to examine the extent to which public policy can influence that tradeoff. To address this objective, a land use allocation model is constructed using slope to reflect terrain heterogeneity. The model is formulated as a mathematical programming problem, with the objective of maximizing producer welfare subject to an exogenous land endowment and a series of production constraints. The model developed in this thesis differs from previous empirical models in several substantive ways. First, crop and livestock production activities are explicitly modeled as either separable or non-separable activities. The advantage to doing so is that it gives the model the flexibility to choose the optimal degree of integration between the two. The model also diverges from previous studies by incorporating a common set of variables that affect the economic and environmental aspects of commodity production. Specifically, the spatial allocation of land use practices impacts economic and environmental outcomes via a yield damage function and differentiated rates of soil erosion. These two aspects are expected to improve the model’s predictive ability. One of the primary benefits of the model is that it can be used to identify the economic factors driving landscape-level production patterns. The analysis demonstrates that the land use allocation is relatively insensitive to changes in commodity prices. Therefore, altering the level of commodity-based income support payments is insufficient to attain environmental improvements. Several hypothetical “green” policy instruments are simulated to estimate the cost to producers of reducing environmental damages. The results indicate that limiting soil erosion to an environmentally acceptable level with either a regulatory standard or a tax reduces the average return to land by ten percent. A program of green subsidy payments for less erosive land management practices cannot attain the same standard with less cost to producers. Overall, the inelastic response of land use change to commodity prices indicates that targeting the use of productive inputs, as opposed to commodity outputs, may be a more efficient means of encouraging agricultural producers to provide environmental benefits.

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