Anneliese KRAUTKRAEMER

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.