| dc.description.abstract | Soil erosion and fertilizer run-off cause serious flow externalities in downstream environments
through-out the world. Social costs include e.g. loss of health, life and production due to pollution and
eutrophication of freshwater resources, reduced life of hydro-power plants, increased turbidity, and
degradation of coral reefs and marine resources.
The key optimal control models on soil capital management omit downstream externalities and
assume that the individual farmer and society share the same objective function. In the presence of
externalities, there is a discrepancy. In this paper the social planner aims at maximizing the profits
from agriculture subject to a soil dynamics-constraint and external damage costs caused by
downstream contamination from soil and fertilizer leakage. These effects are not considered by the
farmer.
Comparative statics analysis shows that factors which promote a low discount rate (tenure security,
access to credits, crop insurance etc.) will reduce soil erosion and nutrient leakage and promote
accumulation of soil capital. Socially optimal subsidies for soil conservation not only will build-up
soil capital and increase on-site crop production, but will also reduce nutrient leakage and soil loss. A
charge on fertilizer would reduce fertilizer use and thus reduce the water pollution caused by leakage
of inorganic nutrients.
Based on our model results, combined with an extended discussion on policy instruments, we conclude
that the government should try to provide incentives, not necessarily to stop soil loss per se (since the
farmers will look after their own capital) but to avoid contamination of downstream environments,
where the resource users have few opportunities to negotiate with the upstream farmers, who may
even be unaware of the problems they cause. | en |
