Agricultural Management and Economics Co-ordinating Editor: G. C. Rausser, Berkeley Editors: J. Anderson, J. Barnett, P. S. Carlson, B. Hallstrom, S. R. Johnson, R. E. Just, T. V. R. Pillay, D. Seckler, B. A. Stout, B. Yaron, P. Zusman R. E. Just N. Bockstael (Eds.) Commodity and Resource Policies in Agricultural Systems With 49 Figures Springer- Ver lag Berlin Heidelberg New York London Paris Tokyo Hong Kong Barcelona Professor RICHARD E. JUST Professor NANCY BOCKSTAEL Department of Agricultural and Resource Economics University of Maryland College Park, MD 20742, USA ISBN-13: 978-3-642-75501-9 e-ISBN-13: 978-3-642-75499-9 DOl: 10.1007/978-3-642-75499-9 This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, re-use of illustrations, recitation, broad casting, reproduction on microfilms or in other ways, and storage in data banks. Duplication of this publication or parts thereof is only permitted under the provisions of the German Copyright Law of September 9, 1965, in its current version, and a copyright fee must always be paid. Violations fall under the prosecution act of the German Copyright Law. © Springer-Verlag Berlin Heidelberg 1991 Softcover reprint of the hardcover I st edition 1991 The use of registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. lYpesetting: Thomson Press (India) Ltd. New Delhi 3113145(3011)-543210 - Printed on acid-free paper Foreword to the Series Agricultural Management and Economics is intended to present new developments on the frontier of agricultural management and econom ics. This series will focus on current and future developments that are likely to make significant changes in production, natural resource sus tainability, environmental quality, farming systems, food processing and manufacturing, commodity markets, product distribution, nutrition and diets, health risks, and the consumption of food throughout the developing and developed world. The series is intended to serve a wide audience of scientists, teachers, students of agricultural management and economics, and agricultural industry decisions-makers. Each volume, focusing on a particular problem area, will present an integrated and clear perspective. The contributors to the volume will be asked to analyze and summarize available knowledge on the specified problem area. Conceptual frameworks for addressing the problem area will be presented and empirical analyses needed to support specific solu tions may be proposed. Contributors may also investigate current re search needs and how these needs might be most fruitfully pursued. They will report whatever findings they have generated in their research and how these findings might be of significance to both developing and developed economies. Accordingly, each volume will provide technical guidance for researchers, academics and postgraduate students whose interests coincide with the problem areas that are defined by each volume. The series is intended to appeal to interdisciplinary audiences and should be useful both as an educational tool and for specialists in various fields attempting to understand one another. The subjects that will be covered in the first volumes of the series include: coordination of agriculture and resource policies, food processing and distribution, management of water resources, agricultural biotechnology, the GATT negotiations and agricultural trade policy reform, management of agricultural productivity in developing countries, the role of institutions and organizations in the effective management of agriculturally related natural and environmental resources, the design and implementation of food security systems, etc. Suggestions for other topics are welcomed from readers and leading scientists throughout the agricultural com munity. GORDON C. RAUSSER Preface Agricultural, natural resource, and environmental problems are becom ing increasingly interdependent. For example, soil erosion is largely determined by agricultural land use. Both water use and water con tamination depend on land use and technology choice in agriculture. In many areas, the fertilizers and pesticides used in agriculture are ma jor pollutants of ground and surface water, having adverse effects on drinking water and fisheries. Agricultural pollutants such as pesticides also produce adverse health effects for agricultural workers and the consuming public. On the other hand, the availability of water resources and the value of competing land uses influence agricultural production. Additionally, regional air quality problems may affect crops and global environmental trends may have long-term implica tions for farming. Agriculture, natural resources and environmental quality are all heavily regulated in the U.S., but they are done so by a vast array of competing or unrelated agencies within the U. S. Departments of Agriculture, Interior, and Commerce, the Environmental Protection Agency; and numerous state agencies. Considering the large number of bureaucratically remote public agencies involved and the pervasive in terdependencies between agriculture, natural resources and the environ ment, policies develop which are at best uncoordinated and at worst conflicting and counterproductive. These policies have become sources of controversy as different interest groups struggle to affect their im plementation, as different agencies have fought for administrative con trol and as legislative bodies have attempted to enact piecemeal changes. The interdependencies and conflicts in agricultural and resource policies are much talked about but studies which analyze them are few and unsystematic. This volume makes an assessment of which aspects of the interface of agricultural and resource policy hold the most potential for increas ed benefits from policy coordination. A variety of policy interactions are examined - some from a conceptual viewpoint and others from an empirical one. The institutional aspects of the problem are examined in a chapter by Rausser and Foster who consider the role of institu tional arrangements and special interest groups in influencing policy. Conceptual papers by Gardner and by Antle and Just demonstrate the importance that geographic heterogeneity has on the interaction of VIII Preface agricultural commodity programs and resource use. Empirical support is provided in papers by Howitt, Johnson et ai. and Miranowski et aI., which come to different conclusions about the importance of coupling commodity programs and environmental policies using analytical frameworks characterized by differing levels of heterogeneity. A second theme that emerges is the importance of the constantly changing information base at the interface of agricultural and resource policy. Wise and Johnson give evidence that changing information is leading to a shift in groundwater polluting property rights reflected in state pesticide policies. Cummings and Harrison discuss how the definition of property rights for water in courtroom litigation has been changing on a continuous basis as courts increasingly accept economic analysis. An interesting extension of the importance of property rights is provided by Horowitz and McConnell, who argue that the benefits from pollution reducing policies in one sector can depend on the pro perty rights in the resource sector. The role of information is the topic of the paper by Chavas and the absence of information is a crucial ele ment in Heal's paper on the greenhouse effect. The empirical papers attempt to assess the magnitude of some of the major interactions between agricultural and resource policy issues. Just, Lichtenberg, and Zilberman show that commodity programs have substantial effects on groundwater depletion in Nebraska. In another paper, the same authors find large effects of the tobacco program on public health. Strand and Bockstael show potentially large interactions between agriculture runoff and fisheries in the Chesapeake Bay. Seger son reports that benefits from air pollution reductions in agriculture can depend heavily on policy regimes, and Leathers provides empirical evidence from Maryland on the implementation of best management practices. In summary, the results of the empirical papers suggest several areas of significant potential benefits from increased coordina tion of agricultural and resource policies, as well as from increased ef forts to compile data necessary to quantify the crucial relationships. RICHARD E. JUST NANCY BOCKSTAEL Contents I An Overview of the Interface of Agricultural and Resource Policy 1 Problems Confronting the Joint Formulation of Commercial Agricultural and Resource Policies 3 Richard E. Just, Nancy Bockstael, Ronald G. Cummings, John Miranowski, and David Zilberman 1.1 Prospects for Policy Coordination ................ . 4 1.2 Issues to Consider .............................. . 5 1.3 The Important Interfaces of Agricultural and Resource Policy ............................. . 7 1.3.1 Water Conservation ............................. . 7 1.3.2 Soil Conservation ............................... . 9 1.3.3 Pesticide and Fertilizer Control ................... . 11 1.3.4 Surface Water Quality ........................... . 11 1.3.5 Public Health .................................. . 12 1.3.6 Regional and Global Air Pollution ................ . 13 1.4 The Challenge of Research at the Interface Between Agricultural and Resource Policy ................. . 13 1.4.1 The Role of Natural Science in Resource and Agricultural Policy Models ................... . 14 1.4.2 The Role of Institutions in the Agricultural-Resources Interface ...................................... . 14 1.5 Complementarity and Consistency in Agricultural and Resource Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 References ............................................. 16 2 The Evolution and Coordination of U.S. Commodity and Resource Policies ........................... . 17 Gordon C. Rausser and William E. Foster 2.1 Introduction ................................... . 17 2.2 Historical Review ............................... . 18 2.2.1 Western Water Resource Development ............. . 20 2.2.2 Farm Credit System ............................. . 22 2.2.3 Environmental Pesticide Policy ................... . 22 x Contents 2.2.4 Federal Soil Conservation Policy .................. . 24 2.3 The Case for Coordination ...................... . 26 2.3.1 Illustrative Examples ............................ . 28 2.3.2 General Formulation ............................ . 32 2.3.3 Coordinated Commodity and Resource Policy Reform 36 2.4 The Limits to Coordination ...................... . 37 2.4.1 The Joint Production and Consumption Processes .. . 38 2.4.2 The Spatial Dimension of Commodity and Resource Policies ........................................ . 39 2.4.3 The Temporal Dimension of Commodity and Resource Policies ........................................ . 40 2.4.4 Public Sector Interagency Coodination ............ . 40 2.5 Conclusion .................................... . 41 References ............................................ . 43 3 A Comparative Analysis of State Regulations for Use of Agricultural Chemicals ................. 46 Sherry Wise and Stanley R. Johnson 3.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 46 3.2 Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 3.3 State Policies .................................... 48 3.3.1 State Policy Instruments .......................... 52 3.4 Survey Design ................................... 56 3.5 Survey Analysis ................................. 60 3.5.1 Date for the Analysis ............................ 60 3.5.2 Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 3.6 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 3.7 Appendix: Dependent Variable Description. . . . . . . . . . 68 References ............................................. 70 4 Policy Failures Arising from Multiple Jurisdictions: Western Agriculture Water Resources, and the Role of the Courts .................................. . 72 Ronald G. Cummings and Glenn W. Harrison 4.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 4.2 Regulating and Controlling Natural Resources: From State Jurisdictions to the Market ............. 73 4.2.1 Limitations on State and Local Jurisdictions in the Control of Natural Resources .............. . 73 4.2.2 The Commerce Clause Extended to Groundwater ... . 76 4.2.3 Equitable Apportionment and Water Markets: The Demise of the Prior Appropriation Doctrine? ... 77 4.3 A General Equilibrium Model for Measuring the Efficiency and Equity Effects of Market Allocations of Water ...................................... . 78 Preface XI 4.3.1 The Basic Model ................................ 79 4.3.2 The Treatment of Water .......................... 84 4.4 Empirical Results ................................ 86 4.5 Concluding Remarks ............................. 91 References ............................................. 93 II Analytical and Conceptual Perspectives 5 Effects of Commodity Program Structure on Resource Use and the Environment ............. 97 John M. Antle and Richard E. Just 5.1 The Conceptual Framework. . . . . . . . .. . . . . . . . . . .. . . 98 5.2 The Disaggregated Model. . . . . . . . . . . . . . . . . . . . . . . .. 100 5.2.1 A Log-Linear Model.............. .... .... ....... 103 5.2.2 Modeling the Joint Distribution of x, ro, and z ...... 105 5.2.3 Truncation of Distributions ....................... 107 5.2.4 Censoring of Distributions ........................ 108 5.3 Policy and Input Use on the Intensive Margin. . . . . .. 110 5.3.1 Agricultural Policy on the Intensive Margin ......... 111 5.3.2 Environmental Policies and Behavior on the Intensive Margin ........................................ . 112 5.3.3 Combining Commodity and Environmental Policies at the Intensive Margin .......................... . 113 5.4 Policy Interaction on the Extensive Margin ......... . 114 5.4.1 Price Support .................................. . 116 5.4.2 Production Controls ............................ . 117 5.4.3 Pollution Tax .................................. . 118 5.4.4 Interaction of a Pollution Tax with Agricultural Policy ......................................... . 119 5.4.5 Pollution Standards ............................. . 119 5.4.6 Interaction of Pollution Standards with Agricultural Policy ......................................... . 121 5.4.7 Conclusions with Respect to Policy Interaction on the Extensive Margin ......................... . 121 5.5 Policy Interaction at the Extensive and Intensive Margins ....................................... . 122 5.6 Generalizations and Extensions of the Analytical Framework .................................... . 125 5.7 Conclusions .................................... . 127 References ............................................ . 128 XII Contents 6 Redistribution of Income Through Commodity and Resource Policy ............................. 129 Bruce L. Gardner 6.1 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 129 6.2 Distributional Tradeoffs .......................... 133 6.3 Political Economy of Distribution ................. 135 6.4 Generalization of the Model ...................... 139 6.4.1 Environmental Gains ............................. 139 6.4.2 Social Costs of Raising Taxes ..................... 139 6.4.3 Environmental Damage Caused by Nonland Inputs .. 140 6.5 Broader Policy Implications ....................... 141 References ............................................. 141 7 Sequential Coordination of Agricultural and Resource Policy ............................. 143 John K. Horowitz and K. E. McConnell 7.1 Introduction ................................... . 143 7.2 A Survey of Relevant Agricultural and Natural Resource Policy ................................ . 144 7.2.1 Agricultural Policies ............................ . 144 7.2.2 Natural Resource Policies ........................ . 147 7.3 Three Examples of Sequential Coordination ........ . 148 7.3.1 The Property Rights for Fisheries Influence the Benefits of Water Quality .................... . 148 7.3.2 Agricultural Water Pollution: The Case of Downstream Markets ................ . 151 7.3.3 Agricultural and Job Safety: The Case of Perfectly Competitive Downstream Markets ................ . 156 7.4 Conclusion .................................... . 157 References ............................................ . 158 8 Information Issues in the Coordination of Agricultural and Resource Policy .............. " 159 Jean-Paul Chavas 8.1 Introduction .................................. " 159 8.2 The Public Choice Model . . . . . . . . . . . . . . . . . . . . . . . . . 160 8.3 Optimal Policy .................................. 163 8.4 The Role of Information ......................... 164 8.4.1 The Informational Value of the States of Nature .... 164 8.4.2 Information and Policy Decisions .................. 166 8.5 Some Implications for Agricultural and Resource Policies ............................ 167 8.5.1 Coordination Between Agricultural Policy and Resource Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168