Muddy Waters: Soil Erosion and Downstream Externalities

Anders Ekbom (), Gardner M. Brown and Thomas Sterner
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Anders Ekbom: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Box 640, SE 40530 GÖTEBORG
Gardner M. Brown: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Box 640, SE 40530 GÖTEBORG

No 341, Working Papers in Economics from University of Gothenburg, Department of Economics

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.

Keywords: optimal control theory; micro analysis of farm firms; resource management; soil erosion (search for similar items in EconPapers)
JEL-codes: C61 Q12 Q20 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2009-01-27
New Economics Papers: this item is included in nep-agr and nep-env
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