Category Archives: Natural resource management

313 – Joining the dots versus growing the blobs

For the recent AARES conference in Adelaide, Maksym Polyakov did a wonderfully creative poster presenting our research on optimal targeting of ecological restoration.

There is a small image of the poster below, but if you want to see the details, go here. (Scroll down when you get there to see the poster.)

Not surprisingly, it won the prize for the best poster at the conference.

Abstract

The primary causes of biodiversity decline worldwide are habitat destruction, alteration and fragmentation resulting from human economic activities such as agriculture or property development. Public- and private-sector organizations allocate considerable resources to slow down biodiversity decline by developing conservation networks that preserve the remaining habitat. In this study we use simulation to compare several strategies to spatially target ecological restoration effort to create conservation networks, on private lands in a fragmented agricultural landscape. The evaluated targeting strategies are aggregation, connectivity and representativeness. The effectiveness of these targeting strategies is compared to the effectiveness of ecological restoration without targeting. We allow for heterogeneity of landowners’ willingness to participate in restoration projects and explicitly assume that that not all parcels within target areas will be restored. We model the probability of participation in restoration projects as a function of the private benefits of ecological restoration captured by the landowner. The results of the simulation are analyzed using regression analysis. Our results suggest that effectiveness of the targeting strategies depends on landscape characteristics (level of fragmentation) and species characteristics (habitat requirements and area of home range). On average, when uncertainty about whether landowners will participate is considered, for most analyzed species, the aggregation strategy outperforms the connectivity strategy with the representativeness strategy performing worst. This is contrary to the findings of previous studies and Government policy, that connectivity is the most effective strategy in fragmented landscapes. Accounting for the landowners’ behavior through a private benefits function improves the biodiversity outcome for most species.

312 – The economics of nitrogen in agriculture

The global challenge of feeding seven billion people would be more difficult without nitrogen fertilizer, but it causes pollution of rivers, lakes and coastal waters around the world, and it contributes to emissions of greenhouse gases. It increases the profitability of individual farmers, but it is over-applied in many cases, wasting money and needlessly worsening environmental problems.

These are, in large part, economic issues. In a recent paper I attempted to summarise the large and diverse research literatures on the economics of nitrogen in agriculture. Here are some of the key points.

At the farm level

The production function for nitrogen (N) fertilizer (the relationship between yield and the rate of nitrogen fertilizer) always exhibits diminishing marginal returns – it flattens out at higher fertilizer rates. In dry conditions, yield may even fall at high N rates.

The rate of nitrogen fertilizer that maximises expected profit is less than the rate that maximises expected yield, sometimes much less.

Here’s a really neat tool that shows the relationships between N, yield and profit for corn in the US. http://cnrc.agron.iastate.edu/

Visual effect of nitrogen fertilizer on corn

Risk

N fertilizer affects the riskiness of cropping. For two reasons, higher N rates are more risky (i.e. profits are more variable at higher N rates). One reason is that the grain price is itself risky. Since profit depends on grain price times yield, and yield usually increases with increasing N rate, the more N you apply, the more variable your profit will be. In addition, yield also tends to be slightly more variable at higher N rates.

Flat payoff functions

There always exists a range of fertilizer rates that are only slightly less profitable than the profit-maximising rate (i.e. a range where the payoff function is relatively flat), and in most cases, that flat range is wide. This means that the farmer has flexibility in choosing the fertilizer rate. If a lower rate would better satisfy another objective (e.g. risk reduction), the farmer can choose that rate with little sacrifice of profit. If regulators require a moderate reduction in fertilizer rate below the farmer’s economic optimum, the cost to the farmer will be small. Flat payoff functions also mean that the benefits of precision-agriculture technologies that spatially adjust fertilizer rates within a field will usually be small.

Nitrogen pollution

Typically, the marginal cost to farmers of nitrogen emissions abatement is low for low levels of abatement but increases at an increasing rate as the required level of abatement increases. As a result, modest targets for abatement can often be achieved at low cost, but ambitious targets can be extremely costly.

Spatial targeting of abatement effort (both at the regional and international scales) can generate much larger benefits than untargeted policies, although these additional benefits are likely to be offset to some degree by increased costs required to run a targeted program (costs of information and administration).

Policies intended to increase farmers’ incomes can have the unintended consequence of increasing nitrogen pollution by increasing the incentive to apply fertilizer.

Further reading

Pannell, D.J. (2017). Economic perspectives on nitrogen in farming systems: managing trade-offs between production, risk and the environment, Soil Research 55, 473-478. Journal web page

Gandorfer, M., Pannell, D.J. and Meyer-Aurich, A. (2011). Analyzing the Effects of Risk and Uncertainty on Optimal Tillage and Nitrogen Fertilizer Intensity for field crops in Germany, Agricultural Systems 104(8), 615-622. Journal web page ♦ IDEAS page

Schilizzi, S. and Pannell, D.J. (2001). The economics of nitrogen fixation, Agronomie 21(6/7), 527-538.

Pannell, D.J. and Falconer, D.A. (1988). The relative contributions to profit of fixed and applied nitrogen in a crop‑livestock farm system, Agricultural Systems 26(1), 1‑17. Journal web page ♦ IDEAS page

Pannell, D.J. (2006). Flat-earth economics: The far-reaching consequences of flat payoff functions in economic decision making, Review of Agricultural Economics 28(4), 553-566. Journal web page ♦ IDEAS page

309 – Why do fishers in Chile put up with poachers?

Fishers in Chile have been given exclusive rights to fish in particular areas, to give them an incentive to avoid over-fishing. In theory, they should be looking out for illegal poachers and reporting them to authorities, but they often don’t bother to do this. We wondered why.

Many fisheries around the world are over-fished, in some cases to the extent that the total catch of fish is less than it would be if fishing effort were reduced. Often, the over-fishing occurs because individual fishers have no incentive to reduce their own catch; if they do so, the fish they leave will be caught by other fishers, because the fishery is “open-access”.

Various policy approaches have been used to try to address this, including limits on fishing gear, limits on the length of a fishing season, and quotas on how many fish can be caught. A relatively recent approach has been the creation of Territorial User Rights for Fishers (TURFs). In this system, a group of fishers forms a cooperative, and they are given exclusive rights to catch the fish in a certain area (Wilen et al. 2012; Gelcich et al. 2012).

The idea is that, because other fishers outside the cooperative cannot come in and poach the conserved fish, members of the cooperative have an incentive to keep their own level of catch at a sensible level. Of course, this only works if the poachers are actually kept out.

One of my PhD students, Katrina Davis, was working on fisheries management in a part of Chile, and she found that fishers who were part of a TURF cooperative were often making no effort to detect poachers or report them to authorities. She wondered why.

One could imagine various reasons:

  • A judgement that the benefits of reducing poaching would be small. (Katrina’s previous research had shown that this was not true (Davis et al. 2015), but the fishers may have had a different perception.)
  • Concerns about the cost of monitoring TURF areas, especially those that were located at some distance from home.
  • Social norms that would make people uncomfortable about reporting others.
  • Concerns about personal safety if the poachers responded with violence.
  • Lack of action by government to penalise poachers who are reported.

Katrina conducted a survey of the fishers to get to the bottom of this (Davis et al. 2017). She’s pretty fluent in Spanish, which would have helped.

She found that it was mainly about failures of government.

Fishers believe that “the judicial process in Chile does not sufficiently recognise the negative impacts of poaching, and that punishments are not sufficiently severe to deter poachers. Fishers also complained that government institutions, such as the navy or fisheries service, do not always respond to their distress calls when they detect poachers in their management areas.” (Davis et al. 2017, p.676).

Thus the government often fails to meet their side of the bargain. It would be really frustrating to fishers who went to the bother of reporting poachers only to find that their report was ignored, or that the poachers got off with trivial fines. No wonder they stopped monitoring or reporting the poachers.

What this amounts to is that the rights that have been allocated to the fishers’ cooperative are greatly diminished. They are rights in name but not in reality.

It highlights that even where a kind of privatisation approach is used to manage a natural resource, there continues to be a critical role for government to protect and enforce the rights that have been created.

Further reading

Davis, K., Kragt, M., Gelcich, S., Schilizzi, S. and Pannell, D.J. (2015). Accounting for enforcement costs in the spatial allocation of marine zones, Conservation Biology 29(1), 226-237. Journal web page

Davis, K., Kragt, M., Burton, M., Schilizzi, S., Gelcich, S. and Pannell, D.J. (2017). Why are fishers not enforcing their marine user rights? Environmental and Resource Economics 67(4), 661-681. Journal web page

Wilen,. J.E., Cancino, J. and Uchida, H. (2012). The economics of Territorial Use Rights Fisheries, or TURFs, Review of Environmental Economics and Policy 6(2), 237-257. Journal web page ♦ IDEAS page

Gelcich, S., Fernández, M., Godoy, N., Canepa, A., Prado, L. and Castilla, J.C. (2012). Territorial User Rights for Fisheries as ancillary instruments for marine coastal conservation in Chile, Conservation Biology 26(6), 1005–1015. Journal web page

299 – Are higher house prices a benefit or a problem?

In the research reported in PD298, we used the impact on house prices as an indicator of the benefits of an investment in a public amenity. This is a well-established approach, but twice in recent times I’ve encountered an attitude that higher house prices are more of a cost than a benefit. Could that be right?

The issue that people have in mind when they raise this concern is housing affordability. This certainly is something that is worthy of attention. House prices in many parts of Australia (and other developed countries) are often so high that they place great financial stress on buyers with relatively low incomes or they result in too many people being excluded from the housing market.

However, talking to a former government minister last year, she said that measuring improved local amenity by the resulting rise in house prices was not acceptable because rising house prices are a problem for housing affordability.

housingAlthough I applaud her concerns for the welfare of low-income groups, her rejection of rising house prices as a measure of community benefits is not sound at all.

For one thing, it implies that rising house prices are a bad thing regardless of the cause of the rise. The logical extension of that thinking is that we would prefer completely impoverished suburbs with no amenities or services for residents. Let’s encourage crime, leave road potholes unrepaired, remove all street trees and encourage toxic industries to set up in urban areas. That would certainly result in affordable housing! This is obviously not the solution to the housing-affordability problem.

The second flaw in the politician’s logic was that it confused measurement with objectives. Improving the amenity of a suburb does result in benefits for the residents, and these benefits are reflected in the prices that people are willing to pay to become residents in that area. So the change in house prices that is attributable to the improved amenity is a sound quantitative measure of the benefits. There may also be spillover effects that are viewed as being negative, but the requirement then is to measure those negatives as well, not to reject the valid measurement of the benefits.

Thirdly, the politician is implicitly suggesting we should aim to achieve two different policy objectives (affordable housing and improved urban amenity) using only one policy mechanism, the decision about whether to invest in urban amenity. An important economic insight, known at Tinbergen’s Rule, says that you need at least one policy mechanism for each policy objective – in this case, one related to urban amenity (e.g. investment in drain restoration) and a different one related to affordable housing (e.g. increased land releases). If you try to achieve two objectives with only one mechanism, the community will end up worse off overall than it might have been.

I was completely unprepared for the ex-minister’s comment at the time, and so dazzled by its many problems that I wasn’t able to quickly provide a very coherent counter-argument. I’ll be better prepared if it comes up again.

Further reading

Borrowman, L. Kazakevitch, G. and Frost, L. (2014). Measuring Housing Affordability: What Types of Australian Households are in Stress? Discussion Paper 42/14, Department of Economics, Monash University. Full paper ♦ IDEAS page

Polyakov, M., Fogarty, J., Zhang, F., Pandit, R. and Pannell, D. (2016). The value of restoring urban drains to living streams, Water Resources and Economics Journal web site ♦ IDEAS page

298 – Potential value from restoring urban drains

I remember as a child playing in the stormwater drains near my home in suburban Perth. The drains were straight, steep-sided, fenced off (to keep us out) and the banks were bare grass, but the water contained little fish, called gambusia, that we loved to catch, not caring that they were actually feral pests.

These days, there is growing interest in restoring urban drains to something approaching a natural stream, including natural vegetation on the surrounding land. In a study funded by the CRC for Water Sensitive Cities, we set out to measure the benefits from restoring a particular drain in Perth.

gambusiaThe drain in question was Bannister Creek, which is really close to my childhood home and those other drains I played in.

In 1979 the creek was straightened, deepened, and made into a traditional drain. During the 1980s and 1990s, the area was urbanised, leading to loss of the wetland system and riparian vegetation, nutrient-rich runoff from lawns and gardens, runoff from industry, and increased erosion and pollution problems in the catchment. Additionally, during high-rainfall events, the increase in the volume and speed of water surging through the now straightened and steeply-banked Banister Creek main drain had become a public-safety risk.

In response, a volunteer group formed (the Bannister Creek Catchment Group), with the aim of improving the creek/drain, including a project to rehabilitate a section of it to a “living stream”. The aim was that this would provide flood-mitigation, local amenity benefits, improved water quality, and slower flow velocity.

The restoration project, from 2000 to 2002, involved giving the creek a more natural shape, with meanders, riffles, fringing sedges, gentle sloping banks, and thick vegetation on the banks.

The transformation from drain to living stream can be seen in Figure 1, which tracks the evolution of the area through time.

living1

Figure 1. Drain restoration over time.

Figure 2 shows the changes at ground level. They were pretty dramatic.

living2

Figure 2. Before and after drain restoration.

To estimate the impact of these changes we examined changes in house prices in the area. We used a statistical model to separate out the various influences on house prices, so that we could isolate the influence of the drain restoration.

This approach means that we are capturing the benefits to local residents, but not possible benefits to others, and not ecological benefits that local residents are unaware of. We expect that the measured benefits would include aspects of amenity, recreation and environmental values.

The results were really interesting, and somewhat surprising in their magnitudes. We found that the restoration project had an influence on property prices over a distance of about 200 metres from the creek. Given that the restored section of the creek was about 320 metres long, quite a large number of property values were affected.

In the first few years after project commencement, property values in the area actually fell, probably reflecting a negative attitude to the substantial earthworks that were required.

However, by 2007 the impact had become very positive. On average, the sale prices of houses in the area rose eventually by an average of 3.9 to 4.7% due directly to the restoration project. Considering only these benefits, the costs of the project were only about 25 to 50% of the benefits.

Overall, the results were very encouraging about the prospects for this type of project to deliver worthwhile benefits to the community.

Further reading

Polyakov, M., Fogarty, J., Zhang, F., Pandit, R. and Pannell, D. (2016). The value of restoring urban drains to living streams, Water Resources and Economics Journal web site ♦ IDEAS page