Joshua M. Duke

This commentary develops a conceptual framework showing how economic research complements agriscience to influence farmer behavior and improve social outcomes. The first model—the workhorse profitability model—has economists estimate the on‐farm costs and benefits of new agriscientific practices. Economic results often imply adoption processes that are more complex than agriscience alone suggests; for example, the most beneficial technologies may also be high cost and less profitable in the near term. The second model—the policy‐problem model—examines how agriscience links on‐farm practices to off‐farm social problems and how economists design policies to align private incentives with public outcomes. This model also explains why recent economic research frequently identifies shortcomings in existing incentive‐based policies and highlights policy innovations that expand the role of market‐based solutions.

Stakeholders for nutrient‐impaired watersheds have long discussed the causes and consequences of nutrient surpluses associated with intensive livestock production. Nonetheless, nutrient surpluses relative to crop requirement, particularly with phosphorus (P), persist and continue to contribute to water quality impairment. Nutrient life‐cycle analysis shows that mineral P, from soil minerals or mined fertilizer P, flows to livestock regions from grain‐producing regions. Although creating a return flow of these nutrients to grain fields seems like an easy solution, significant economic obstacles exist to creating a connected manureshed over large geographic distances. To limit the impact of manure use on local surface water, state, federal, and nongovernmental actors have largely targeted their interventions in manure source areas. Even manure transport programs tend to focus on obstacles at the point of production in manure source areas. However, if we are to realize connected manuresheds that cost‐effectively distribute manure nutrients beyond the current publicly funded incentive programs, we must address obstacles to manure utilization in potential sink areas that supply grain to livestock regions. Further, we can harness the power of computer‐mediated market design and scientific research to build even more‐effective markets that generate manure nutrient transfers of an order of magnitude that will substantively improve water quality in source areas. This manuscript offers economic insights into potential improvements to current manure nutrient relocation programs. Under the right conditions, these improvements will relocate more manure, generate more environmental benefits, and improve the profitability of most participating farmers.

Agricultural cost‐share research and planning tend to focus on one program at a time, and hence overlook additional efficiencies that might be obtained by considering the possibility that enrollment decisions are related across different programs. Models of multiple‐program participation decisions enable these relationships to be considered as part of conditional enrollment predictions, providing more complete and accurate understanding of enrollment behavior. Analysis of data from farmer surveys in Maryland and Ohio show complementary drivers across program participation. Results are consistent with economies of scale and/or scope among different agri‐environmental programs. The data also show the gains in prediction accuracy when the model accounts for participation in other programs, thereby enabling improved targeting and program design. For instance, enrollment in commodity‐type programs causes a much larger marginal increase (12.6%) in the probability of Maryland cover crops participation than does the increase from Conservation Reserve Program enrollment (4.4%).

An economic experiment with endogenous institutions informs the political economy of land value taxation relative to uniform property taxation in terms of efficiency and sprawl reduction. Heterogeneous type distributions were used so that land value taxation was earnings-rational, relative to uniform property taxation, for 40, 60, and 80 percent of the participants. The model’s induced values predict land value taxation leads to less sprawl, more earnings, and more tax revenue than uniform property taxation. Experimental data do not consistently match this prediction, where both tax institutions led to more sprawl and lower earnings than predicted. Results show participants voted for the tax institution that does not maximize their individual earnings in 16.7 percent of rounds. These earnings-irrational choices occurred when the type distributions were 40 and 60 percent in favor of land value taxation. The experiment results nonetheless show the absolute advantage of land value taxation for producing less sprawl, more tax revenue, and more earnings. Moreover, the behavioral evidence suggests that relative advantage of land value taxation in reducing sprawl is greater than predicted by the model. This suggests further inquiry about whether land value taxation promotion activities may best be targeted towards cities using uniform property taxation where economies are vibrant, land uses are already relatively intensive, and greater-than-average population density already exists.

This paper develops a coupled hydrologic‐economic model that estimates the effects of six tax institutions that theory predicts will lead to equal amounts of aquifer withdrawal. That said, the distributive effects of the tax institutions are expected to differ because each involves different combinations of tax thresholds and side payments (returned tax revenue). The tax policies can lead to groundwater users being worse off than they would be using an unmanaged aquifer. This study explores whether the distributive impacts of specific policies that have equal marginal incentives lead to differences in the behavior of participants in an experiment involving a common pool groundwater resource. The results reveal that each of the tax policies results in approximately the same reduction in resource use but affects participants' earnings and opinions regarding the policies differently. A tax imposed on groundwater use above a threshold and without a side payment is most effective in increasing the net social benefit associated with using the aquifer; participant earnings under that scheme are almost equal to earnings from an unmanaged aquifer (1.04% less), and overall social efficiency is greater (4.34%). Unfortunately, participants tend to prefer an unmanaged aquifer and tax policies with high side‐payments—treatments that led to lower overall social efficiency. The evidence suggests that aquifer management may require a two‐fold approach: (1) a carefully selected threshold that can make water users financially indifferent between a managed and unmanaged aquifer and (2) education to increase the political acceptability of the managed aquifer policy.

This research offers the first economic experiment investigating the land tax, where landowners invest under different property tax regimes. A voting treatment assesses the relative acceptability of land value taxation. Results show a land tax produced greater overall welfare in only 37.5% of the experiment sessions. Systematic overinvestment arises from the positional-good characteristic of residential land investment, but this effect vanishes when the positional-good indicator is removed. The experiments show that the participants unexpectedly voted in favor of the land tax, suggesting that the efficiency and acceptability of the land tax may be more complex than in nonbehavioral economics modeling. (JEL H21, H71)

The concept of negative externality is central to the teaching of environmental economics, but corrective taxes are almost always regressive. How exactly might governments return externality-correcting tax revenue to overcome regressivity and not alter marginal incentives? In addition, there is a desire to achieve a double dividend in the use of externality-correcting taxes, that is, to use the revenue to offset existing distortionary taxes, such as those on labor that produce a dead weight loss. In this article, the authors explain a classroom game that was developed for students to understand the theory of externalities, taxation dead weight loss, and regressivity. Then, the problem helps students explore the actual design of a policy that satisfies the double dividend hypothesis and corrects for regressivity.