Sonia SCHWARTZ

Argentina's economy is organized mainly around the export of transgenic soybeans. This production is associated with several environmental and social costs. This article investigates transgenic soybean production regulation possibilities, which fulfills efficiency, acceptability, and feasibility by directly controlling production levels. Production quota markets are promising because they make it possible to implement cost-effective production. However, Argentina's agricultural sector is organized into large agro-associations with significant political power. The exercise of market power could challenge the attractive properties of production quota markets. This article considers the possibility of these organizations manipulating the quota market to capture a larger share of production. The production quota market could give rise to "raising rivals' costs" behavior. Contrary to the existing literature, this article shows that this strategy is profitable, even though the price of transgenic soybeans is fixed on international markets. To restore efficiency in production levels while preserving policy acceptability, we propose to auction production quotas with an adequate rebate revenue. Alternatively, initial quota allocation can be hybrid. The initial allocation chosen will depend on the trade-off between efficiency and acceptability of the environmental policy. Thus, while proposing a specific and adapted regulation for transgenic soybeans in Argentina, this article contributes to the knowledge of tradeable production quotas, which are almost less analyzed in the economic literature.

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LEO Working Paper 2024-09

In this article we analyze whether environmental protection policies in Brazilian municipalities of Legal Amazon drive technical progress in agriculture, thus verifying the Porter hypothesis. Specifically, we investigate whether agricultural firms in municipalities with protected areas (PAs) are technically more performant in agriculture than firms in municipalities without protected areas. We use agricultural census data from 1995/1996 and 2005/2006 and derive estimates of potential production frontier, technical efficiency and total factor productivity as proxies of agricultural performance in a stochastic frontier framework. Next, we run estimates of a panel model with fixed effects, including difference-indifference estimator, to assess the effect of protected-area policies on efficiency, potential production and total factor productivity changes. Results are consistent with significant changes in potential production and total factor productivity. Because the shift of the potential production across time is a result of technical progress, our estimates show that agricultural firms in municipalities with protected areas improved their technical progress more in year 2006 compared to year 1996.

This article focuses on the avoid, reduce, compensate (ARC) sequence that accompanies the no net loss policy. It studies the behavior of a developer in the face of this policy. Under perfect information, it appears that this policy is a policy of environmental standards, whose objectives are difficult to transpose into a microeconomic decision model. Moreover, we show that the demand for compensation does not depend on its price. We then assume that the regulator does not share the same information as the developer on the environmental damage of the project. In this case, the developer strategically uses this asymmetric information. Using the backward induction reasoning, he simultaneously defines his demand for offsets and the level of environmental damage reduction based on the offset price. In the end, the project choice is made by also taking into account the price of the offset. This article shows that the mitigation hierarchy is ineffective under asymmetric information, making the safeguarding of biodiversity inefficient.

This paper designs the second-best Payment for Environmental Services (PES) when it interacts with a Pigouvian tax under imperfect competition. We consider farmers who face a choice between producing a conventional or an organic agriculture good. The regulator sets a Pigouvian tax on conventional agriculture as it generates environmental damages, as well as a PES on uncultivated land as buffer strips favor biodiversity. The conventional agriculture sector is perfectly competitive, unlike the organic agriculture sector, which is organized under an oligopoly. We show that the second-best level of the Pigouvian tax is higher than the marginal damage whereas the PES is lower than the marginal benefit. We then introduce the social marginal cost of public funds (MCF) and show that the Pigouvian tax increases with the MCF while the PES decreases with the MCF provided that demand for the conventional agriculture good is inelastic. We thus highlight a contributory component of the environmental incentive tax. This paper also identifies specific cases where the PES is ineffective in promoting biodiversity.

The implementation of Payments for Environmental Services (PES) may face a financing constraint, especially when the buyer is a public regulator. An additionality-based PES can address this problem. The objective of this paper is to study the efficiency of PES based on additionality. To do so, we consider a farmer who has to choose to allocate his land between organic production, conventional production causing environmental damage, or biodiversity-generating grass strips. Using a two-period model, we introduce a PES in the final period, remunerating the additional grass strips provided by the farmer. We show that the additional PES distorts the behavior in the initial period, in order to obtain more payment in the final period. The second-best PES to limit this behavior is equal to the discounted difference of the marginal environmental benefits obtained in each period. We also establish the second-best value of environmental taxes in the presence of the additionality-based PES. They are no longer equal to the marginal damage and are amended to take into account the distortions caused by the additionality-based PES. The analysis is then extended by taking into account market power in the organic market. It turns out that market power reduces the distortion due to the additionality-based PES in the initial period but reduces the organic production quantity in the final period. The second-best PES depends on the size of these two effects and environmental taxes under market power have to be amended. Finally, this paper shows that an additionality-based PES never achieves environmental efficiency, even in a competitive market framework. Furthermore, this paper provides new insights into understanding the interactions between different environmental policies in the presence of several types of distortions.