SABIIA - Sistema Aberto e Integrado de Informação em Agricultura (Sabiia)

Song, Feng; Zhao, Jinhua; Swinton, Scott M..

We study a farmer’s decision to convert traditional crop land into growing dedicated energy crops, taking in account sunk conversion costs, uncertainties in traditional and energy crop returns, and learning. The optimal decision rules differ significantly from the expected net present value rule, which ignores learning, and from real option models that allow only one way conversions into energy crops. These models also predict drastically different patterns of land conversions into and out of energy crops over time. Using corn-soybean rotations and switchgrass as examples, we show that the model predictions are sensitive to assumptions about stochastic processes of the returns. Government policies might have unintended consequences: subsidizing conversion...

Alternative Land Use Policies: Real Options with Costly Reversibility

Palavras-chave: Real options; Irreversibility; Sunk costs; Land conversion; Biofuel; Cellulosic biomass; Dynamic modeling; Stochastic process; Biofuel policy; Land Economics/Use; Resource /Energy Economics and Policy; Risk and Uncertainty; Q42; Q24.

Ano: 2009

URL: http://purl.umn.edu/56195

Song, Feng; Zhao, Jinhua; Swinton, Scott M..

This paper adopts a real options framework to evaluate the cost-effectiveness of four types of subsidies that aim to encourage a socially desirable land use under return uncertainties and costly reversibility of land use change. We first present a land conversion model to show how the subsidies that are expected net present value (ENPV) equivalent can change a representative farmer’s optimal land conversion rules differently for converting land into an alternative use as well as converting out of it. This is because these subsidies affect the land conversion costs, land return level and uncertainty differently. Then in the context of encouraging energy crop production, we compare the probabilities of inducing the representative farmer to convert land from...

Tipo: Conference Paper or Presentation

Palavras-chave: Monte Carlo simulations; Real options; Agricultural subsidies; Cost-effectiveness; Two-way land conversion; Agricultural and Food Policy; Resource /Energy Economics and Policy; Q24; Q48.

Ano: 2010

URL: http://purl.umn.edu/61510

THE SUBSIDY FOR ADOPTING CONSERVATION TILLAGE: ESTIMATION FROM OBSERVED BEHAVIOR

Kurkalova, Lyubov A.; Kling, Catherine L.; Zhao, Jinhua.

Due to payoff uncertainties combined with risk aversion and/or real options, farmers may demand a premium in order to adopt conservation tillage practices, over and above the compensation for the expected profit losses (if any). We propose a method of directly estimating the financial incentives for adopting conservation tillage and distinguishing between the expected payoff and the premium of adoption based on observed behavior. We find that the premium may play a significant role in farmers' adoption decisions. Even for non-adopters, conservation tillage provides a higher payoff than does conventional tillage on average, as agronomists have argued. However, non-adopters do not use conservation tillage because the expected profit gain alone does not fully...

Tipo: Conference Paper or Presentation

Palavras-chave: Land Economics/Use.

Ano: 2001

URL: http://purl.umn.edu/20542

A PROPOSAL TO REFORM THE KYOTO PROTOCOL: THE ROLE OF ESCAPE CLAUSES AND FORESIGHT

Karp, Larry S.; Zhao, Jinhua.

A reform to the Kyoto Protocol that allows signatories to pay a fine instead of meeting the target level of abatement would achieve three goals. First, it would defuse one U.S. objection to the agreement: the concern that the cost of achieving the target might turn out to be extremely high. Second, unlike other cost-reducing measures (such as trade in pollution permits) it would increase the equilibrium number of signatories in a non-cooperative participation game. Third, it would make it easier to force signatories to comply with their obligations. We study the participation game under an escape clause using both a Nash Equilibrium and the concept of a stable set when nations are “farsighted”. We compare our results to a prominent model of International...

Suggestions for the Road to Copenhagen

Palavras-chave: Environmental Economics and Policy.

Ano: 2007

URL: http://purl.umn.edu/6857

Karp, Larry S.; Zhao, Jinhua.

We provide a unified discussion of the issues that confront negotiators of the next international climate agreement. We offer a novel proposal that entitles countries to discharge their treaty obligations by paying a “fine”. This escape clause provides cost insurance, simplifies the problem of enforcing compliance, and increases incentives to participate in the agreement. We explain why developed country obligations should rely on a cap and trade commitment rather than carbon taxes. A Central Bank maintains stability of carbon prices by defending a price ceiling and floor. An so-called intensity target is not a good alternative to an emissions cap. Modest trade restrictions, consistent with WTO law, will form an important part of the next agreement....

Real Options and the WTP/WTA Disparity

Palavras-chave: Kyoto protocol; Escape clause; Emissions trade; Taxes versus cap and trade; Price stability; Carbon leakage; Trade restrictions; Differentiated responsibility; Clean development mechanism; Sectoral agreements; Demand and Price Analysis; Environmental Economics and Policy; Research Methods/ Statistical Methods; Resource /Energy Economics and Policy; Q54; Q58; F13.

Ano: 2009

URL: http://purl.umn.edu/51610

We present a real options model of an agent's decision to purchase or sell a good under conditions of uncertainty, irreversibility, and learning over time. Her WTP and WTA contain both the intrinsic value of the good and an option value associated with delaying the decision until more information is available. Consequently, the standard Hicksian equivalence between WTP/WTA and compen-sating and equivalent variation no longer holds. This helps to explain the WTP/WTA disparity often observed in laboratory experiments and surveys because subjects may have limited learning time and opportunities, thus generating option values. In contrast, the disparity may decrease or disappear entirely in real markets since agents are free to choose when to stop gathering...

The Long-Run Effects of Environmental Reform in Open Economies

Palavras-chave: Research Methods/ Statistical Methods; D60; D83; C90.

Ano: 1998

URL: http://purl.umn.edu/18416

Karp, Larry S.; Zhao, Jinhua; Sacheti, Sandeep.

We compare the short-run and long-run effects of environmental reform and harmonization under autarky and free trade. When trade is driven by environmental distortions rather than real relative advantages, harmonization of environmental policies, even if achieved by lowering standards in one country, can improve short-run aggregate welfare. With the possibility of multiple steady states, long-run considerations favor a "race to the top" rather than a "race to the bottom" even when upward and downward harmonizations are equivalent in the short run. For a country trapped in a low (or bad) steady state, environmental reform may not move it to a high (or good) steady state under autarky. However, under trade, harmonization of policies may enable this country...

Irreversible Abatement Investment Under Cost Uncertainties: Tradable Emission Permits and Emissions Charges

Palavras-chave: International trade and the environment; Environmental policy reform; International harmonization of environmental policies; Environmental dynamics and trade; Environmental Economics and Policy; International Relations/Trade; Q20; F10; H23.

Ano: 2000

URL: http://purl.umn.edu/25099

Zhao, Jinhua.

A major concern with TEPs is that stochastic permit prices may reduce firm incentive to invest in abatement capital or technologies relative to other policies such as a fixed emissions charge. However, under effcient permit trading, the price uncertainty is caused by abatement cost uncertainties which affect investment under both permit and charge policies. We develop a rational expectations general equilibrium model of permit trading to show how cost uncertainty affects investment. Differences between the two policies can be decomposed into a general equilibrium effect and a price-vs-quantity effect. Except for the curvature of the payoff functions, uncertainties reduce both effects so that tradable permits in fact help maintain firms' investment...

ALTERNATIVE INTERTEMPROAL PERMIT TRADING REGIMES WITH STOCHASTIC ABATEMENT COSTS

Palavras-chave: Environmental Economics and Policy; Q20.

Ano: 2000

URL: http://purl.umn.edu/18342

Feng, Hongli; Zhao, Jinhua.

We examine the social efficiency of alternative intertemporal permit trading regimes. Banking with a 1-to-1 ratio and with a non-unitary intertemporal trading ratio (ITR) are compared with each other and with the no-banking permit trading regime. The more industry-wide shocks vary, and/or the more they are negatively correlated across time, the more efficient is a bankable permit regime. When the slope of the benefit function is greater than the slope of the damage function, banking with ITR=1+r is more efficient than a no-banking regime. Banking with ITR=1 can be more efficient than a no-banking regime. However, whether ITR=1 or ITR=1+r is better depends on the covariance structure of the shocks and the benefit and damage functions.

Carbon Sequestration in Agriculture: Value and Implementation

Palavras-chave: Bankable permits; Permit banking; Borrowing; Environmental Economics and Policy.

Ano: 2002

URL: http://purl.umn.edu/18543

Feng, Hongli; Zhao, Jinhua; Kling, Catherine L..

We investigate the value of carbon sequestration in a dynamic model, demonstrating that it is only a fraction of the value of emission abatement unless the sequestration, the natural decay rate of carbon and the discount rate. We also show that to optimally reduce the carbon stock, sinks should be utilized as early as possible. Further, we propose and assess three mechanisms to efficiently introduce sequestration into a carbon permit trading market, a pay-as-you-go system. We show that, although the three mechanisms may not be equally feasible to implement, they are all efficient.

Conservation Payments: Challenges in Design and Implementation

Palavras-chave: Environmental Economics and Policy.

Ano: 2000

URL: http://purl.umn.edu/18380

Babcock, Bruce A.; Beghin, John C.; Duffy, Michael D.; Feng, Hongli; Hueth, Brent; Kling, Catherine L.; Kurkalova, Lyubov A.; Schneider, Uwe A.; Secchi, Silvia; Weninger, Quinn; Zhao, Jinhua.

As Congress develops new farm legislation, some are lobbying for a new partnership between U.S. taxpayers and farmers. In exchange for an annual transfer of $10 to $20 billion from taxpayers to agriculture, farmers would do much more to enhance environmental quality. An attractive feature of a new partnership is that paying for an improved environment provides a clear and justifiable rationale for farm program payments, something that is lacking under current farm programs. By changing management practices and land use, farmers can provide cleaner water, cleaner air, better wildlife habitat, lower net greenhouse gas emissions, and improved long-run soil quality. Private profit maximizers largely ignore the value of these environmental goods. Hence, the...

Willingness-to-Pay, Compensating Variation, and the Cost of Commitment

Palavras-chave: Land Economics/Use; Resource /Energy Economics and Policy.

Ano: 2001

URL: http://purl.umn.edu/36920

We present a dynamic model of an agent's decision to purchase or sell a good under conditions of uncertainty, irreversibility, and learning over time. Her WTP contains both the intrinsic value of the good and a commitment cost associated with delaying the decision until more information is available. Consequently, the standard Hicksian equivalence between WTP/WTA and compensating and equivalent variation no longer holds. This finding has important practical implications as it implies that observed WTP values are not always appropriate for welfare analysis.

ALTERNATIVE GREEN PAYMENT POLICIES UNDER HETEROGENEITY WHEN MULTIPLE BENEFITS MATTER

Palavras-chave: Demand and Price Analysis; D60; D83.

Ano: 2000

URL: http://purl.umn.edu/18357

Zhao, Jinhua; Kling, Catherine L.; Kurkalova, Lyubov A..

We investigate the environmental impacts of several forms of policies that offer farmers subsides in return for adoption of conservation tillage. The policies differ on whether the tillage practice or one of the environmental benefits is targeted. We develop an environmental Lorenz curve that fully represents the performance of the targeting policies, and we show that these curves can be used directly to help select the optimal targeting strategy for special classes of social welfare functions. We apply the model to the state of Iowa.

THE WTP/WTA DISPARITY: HAVE WE BEEN OBSERVING DYNAMIC VALUES BUT INTERPRETING THEM AS STATIC?

Palavras-chave: Environmental Lorenz curve; Multiple benefits of conservation tillage; Targeting subsidy policy; Environmental Economics and Policy.

Ano: 2003

URL: http://purl.umn.edu/18383

Kling, Catherine L.; List, John A.; Zhao, Jinhua.

This study advances, and experimentally tests, a new explanation for the disparity between willingness to pay (WTP) and willingness to accept (WTA)-a dynamic neoclassical theory based on the presence of commitment costs. While to date neoclassical models have not explained the observed data patterns well, we find that the commitment cost theory is able to explain adequately the causes and severity of the WTP/WTA value disparity. In particular, using data gathered from an actual marketplace, even the most stringent of our theoretical conjectures-cases where WTP values are predicted to exceed WTA values-oftentimes are met.

PARAMETRIC AND NON-PARAMETRIC CROP YIELD DISTRIBUTIONS AND THEIR EFFECTS ON ALL-RISK CROP INSURANCE PREMIUMS

Palavras-chave: Field experiment; Neoclassical theory; Willingness to accept; Willingness to pay; WTP/WTA disparity; International Relations/Trade.

Ano: 2003

URL: http://purl.umn.edu/18595

Turvey, Calum G.; Zhao, Jinhua.

Normal, gamma and beta distributions are applied to 609 crop yield histories of Ontario farmers to determine which, if any, best describe crop yields. In addition, a distribution free non-parametric kernel estimator was applied to the same data to determine its efficiency in premium estimation relative to the three parametric forms. Results showed that crop yields are most likely to be described by a beta distribution but only for 50% of those tested. In terms of efficiency in premium estimation, minimum error criteria supports use of a kernel estimator for premium setting. However, this gain in efficiency comes at the expense of added complexity.

IRREVERSIBLE ABATEMENT INVESTMENT UNDER COST UNCERTAINTIES: TRADABLE EMISSION PERMITS AND EMISSIONS CHARGES

Palavras-chave: Crop insurance; Crop yield distributions; Kernel; Crop Production/Industries; Risk and Uncertainty.

Ano: 1999

URL: http://purl.umn.edu/34129

Common Ground Between Free-Traders and Environmentalists

Zhao, Jinhua.

A major concern with TEPs is that stochastic permit prices may discourage abatement investment relative to other policies such as a fixed emissions charge. However, the price uncertainty is fundamentally caused by abatement cost uncertainties, which affect investment under both policies. We develop a rational expectations general equilibrium model of permit trading to show how uncertainty reduces investment. Differences between the two policies can be decomposed into a general equilibrium effect and a price-vs-quantity effect. Except for the curvature of the payoff functions, uncertainties reduce both effects: tradable permits in fact helps maintain firms' investment incentives under uncertainty.

Tipo: Conference Paper or Presentation

Palavras-chave: Environmental Economics and Policy; Q20.

Ano: 2000

URL: http://purl.umn.edu/21816

Karp, Larry S.; Sacheti, Sandeep; Zhao, Jinhua.

We use a North-South model with property right differences and resource dynamics to study the effects of trade on resource use and welfare. Autarky is likely to Pareto-dominate free trade in the long run when the environment is quite fragile, and the result is reversed when the environment is quite resilient. Trade may cause an environmentally poor country to drag down" its richer trading partner; in this case, both countries degrade their stocks when these would be preserved under autarky. Alternatively, trade may enable the environmentally richer country to pull up" its partner; in this case both countries preserve their stocks when these would be degraded under autarky. These results rationalize the positions of environmentalists and free-traders. The...

ENVIRONMENTAL VALUATION UNDER DYNAMIC CONSUMER BEHAVIOR

Palavras-chave: Environmental Economics and Policy; D5; F1; O2; Q2.

Ano: 1999

URL: http://purl.umn.edu/25042

The paper presents two simple models of dynamic consumer behavior, both taking into consideration the implications for welfare measurement when agents can delay transactions while obtaining additional information. One model studies the effect when a purchased good is non-perishable and can be consumed in the future, while the other model introduces a perishable good, implying that the quantity of consumption can vary in each period. Even in the case of the perishable item, the availability of information at the time of the consumption decision has important implications for welfare measurement. Agents who must make a decision at the present but know that additional information will be available later may change their income allocation to take advantage of...

Alternative Green Payment Policies When Multiple Benefits Matter

Palavras-chave: Environmental Economics and Policy.

Ano: 2002

URL: http://purl.umn.edu/18621

Zhao, Jinhua; Kurkalova, Lyubov A.; Kling, Catherine L..

This study investigates the environmental impacts of several forms of policies that offer farmers subsides in return for the adoption of conservation tillage. The policies differ as to whether the tillage practice or one of several environmental benefits is targeted. We develop an Environmental Lorenz Curve which fully represents the performance of the targeting policies, and show that this curve can be directly used to help select the optimal targeting strategy for special classes of social welfare functions. The model is applied to the state of Iowa.

Tipo: Journal Article

Palavras-chave: Environmental Economics and Policy.

Ano: 2004

URL: http://purl.umn.edu/31378

Policy Persistence in Environmental Regulation

We study the optimal emission standards under uncertain pollution damages and transaction costs associated with policy changes. We show that in many situations, the authority should avoid or reduce the scale of a policy change in the presence of future transaction costs. Then policy persistence is a rational response of forward-looking policy makers to future transaction costs, rather than a passive outcome of the current political process.