AGEC/FNR 406 LECTURE 15 Pesticide Leaching Potential from Field Crops

Possible Interventions 1. Moral suasion 2. Government provision of goods 3. Damage prevention 4. Command and control 5. Economic Incentives

Economic Incentives 1. Tax (per-unit penalty) 2. Subsidy (per-unit reward) 3. Transferable Permits (market-based)

Focus on case of negative externality and compare: 1. Command and control (direct regulation) 2. Tax 3. Subsidy

Command and Control Set limit on emission or specify technology SMC = PMC + MD Q Q M PMC PMB=SMB MAX

Pigouvian Tax Set tax = marginal damage rate SMC = MC + tax Q MC Tax = MD

Subsidy Often used in conjunction with technology MSC (Tech 1) MPC (Tech 1) MPC (Tech 2) MSC (Tech 2) Subsidy

Command and Control 1. When monitoring costs are high 2. When optimal emission is near zero 3. During random or emergency events Consists of government-specified rules and regulations, often with fines and charges for violations. Most effective:

Drawback of C+C: If marginal abatement costs are different for different pollutors, then C+C will lead to an inefficient allocation of clean up burden among different producers.