Property Rights - Department of Agricultural...
Transcript of Property Rights - Department of Agricultural...
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AGEC 603
Property Rights
• Definition
– A bundle of entitlements defining the owner’s rights,
privileges, and limitations for use of a resource
– Instrument of society
– Help people form expectations
• Transactions
– Two bundles of property rights are exchanged
– Value of these bundles of rights determines the value of
the exchange
Property Rights
• Universality
– All resources are privately-owned and all entitlements are
completely specified
• Exclusivity
– All benefits and costs accrued as a result of owning and using
the resource accrue to the owner and only the owner
• Transferability
– All rights can be transferred in voluntary trades
• Enforceability
– Property rights should be secure from involuntary seizure from
others
Property Rights- Characteristics
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• Well-defined rights promote efficiency - society’s
viewpoint
– maximize the net benefits from the use of a resource to society
• Net benefits – cost
• Society- includes both producers(sellers) and consumers(buyers)
– Owners pay all costs and receive all benefits
• They have a powerful incentive to use the resource efficiently
• Misuse hurts themselves
• Primary function is to guide actions of economic players
through a greater internalization of costs and benefits
• Emergence of Property Rights
– Dynamic system emerges with change in society
Property Rights- Efficiency
• Right to tax or support government
• Right to police – enforce rights
• Right of eminent domain – take rights away with just
compensation
• Right to take estate if no heirs and will
Property Rights – Govt. Reserves
Assumptions
• Homogenous product
• Freely mobile resources
• Perfect information
• Well defined property rights
Perfectly Competitive Market
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Demand - Surplus
Marginal WTPsPP1
P2
P3
L1 L2 L3 Land
PP1
P2
P3
L1 L2 L3 Land
Sum to get total benefits 0 to L2
• Consumer Surplus- difference between WTP as given by the demand curve and amount actually paid as given by the price
Consumer Surplus
PP1
P2
P3
L1 L2 L3 Land
Must pay P2 to get L2
Surplus 0 to L2 WTP more than you have to pay in the market
Supply - MOC
Marginal costsPP1
P2
P3
L1 L2 L3
Land
Sum to get total costs 0 to L3PP1
P2
P3
L1 L2 L3
Land
The supply of land to a particular use slopes upward to the right. Why – can change between uses. MOC gives the cost of supply the last unit of land.
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PP1
P2
P3
L1 L2 L3
Land
• Producer Surplus- economic rents above the firms’ cost of production. Below the price line and above the MOC
Producer Surplus
• Real source of wealth – production and exchange
• Self - interest
– Argued the voluntary self-interest of millions of
individuals would create a stable, prosperous society
without the need for central direction by the state
– Consumers want to maximize CS
– Producers want to maximize PS
• Invisible hand
• Perfect competition assumptions
+ no externalities
+ no barriers to trade
Merge Supply and Demand
Invisible Hand
P
Land
S
D
P
Land
S
D
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Market Equilibrium
P
Land
S
D
P*
L*
Equilibrium
Supply = Demand
Market Equilibrium
P
Land
S
D
P*
L*
Costs
PS
CS
• Market system does not achieve economic efficiency
• Failure does not imply a barrier to market clearing forces but
rather marketing clearing forces do not maximize society’s net
benefits
• Causes
• Should we correct / how?
Market Failure
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• Exclusivity violated
– Cost or benefit not being internalized to the resource owner
• Market will not be at society’s efficient point
– Govt. intervention maybe necessary only if B > C
• Positive Externalities
– Gardens, landscapes
• Negative Externalities
– Pollution – water, air, noise, etc.
Externalities
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1.5
2
2.5
3
3.5
4
4.5
0 5 10 15 20 25 30
Quantity
Pri
ce `
MC society = MC private +
externality
MC private
Society’s efficient point given by
MC society = Demand
P* = 3 and Q* = 7.75
Demand
Externalities - Efficiency Point
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1.5
2
2.5
3
3.5
4
4.5
0 5 10 15 20 25 30
Quantity
Pri
ce `
MC society = MC private +
externality
MC private
Market equilibrium given by
MC private = Demand
Pm = 2.50 and Qm = 10.75
Demand
Externalities - Market Equilibrium
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• Market vs. society optimum
– Price in market is to low
– Too much quantity is produced
– Too much of externality is produced
• Government intervention
– Tax
– Coase Theorem
– Command and control
– Transferable rights
Externalities - Summary
Externalities - Tax
• Proposed by A.C. Pigou
• Tax the externality- shift the MC private curve up by the amount of the externality– Market equilibrium will be at the efficient point given by society
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1.5
2
2.5
3
3.5
4
4.5
0 5 10 15 20 25 30
Quantity
Pri
ce `
MC society = MC private +
externality
MC private
Market equilibrium given by
MC private + tax =
MC society = Demand
Pm = 3 and Qm = 7.75
Demand
Externalities - Tax
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Hoggie the farmer’s
No control = $0
Low control = $20
High control = $150
Joe Nose the neighbor’s
No control = $100 health problems
Low Control = $20 a few health problems
High Control =$0 no health problems
Farm Odor Example
Society’s Optimal
Hoggies cost of control
Joe Nose cost of damages
Hoggies wants no control
Joe Nose wants high control
Society’s total minimized at low
• Command and Control
– Engineering approach
– Set a technology level used by polluted, usually same for all
• Can set at zero, low, or high levels of control
• Coase Theorem
– One of the most used ideas of economics by professions
outside of economics
– Used by judicial branch
• Define the right between two parties and then tell them to work it out by
themselves
Solution- Besides Tax
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• Coase Theorem
– Economic inventive based approach
– Give rights to the air to either Joe Nose or Hoggie
– Does not matter who gets the rights we will reach society’s
efficient point as long as rights are well defined and
transactions costs are low
• Ronald C. Coase
– British Economist
– Wheat vs. cows
– University of Chicago
– Nobel Prize Winner
Solution- Coase Theorem
• Rights to Hoggie
– Start with no control
– End up with low control
• Rights to Joe Nose
– Starts with high control
– End up with low control
– Difference who pays -- wealth impact
Hoggie the farmer’s MC
No control = $0
Low control = $20
High control = $150
Joe Nose the neighbor’s MC
No control = $100 health problems
Low Control = $20 no health problems
High Control =$0 no health problems
Hoggie vs. Joe
• Another economic incentive approach
• Permits set equal to the level of pollution desired
– To be able to pollute you must have a permit
– Permits can be freely bought or sold
• Firms make the following decision
– Control pollution
– Buy a permit
• Idea
– Low control cost firms will control pollution and sell permits
– High control cost firms will pollute but buy permits
– Society’s overall cost will decline
Transferable Rights
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• Optimal level of pollution is not zero
• Damages / technology helps determines optimal level
• Problem property rights are not well defined
– Exclusivity violated
– Externalities
• Engineering and economic incentive approaches
– KEY – all have different weaknesses and strengths
– Solution will depend on a mix of these approaches
– Politics along with science will be involved
Summary Pollution
• A good whose consumption is indivisible
– One person’s consumption of a good does not diminish the amount available to others
• Key – non-rival & non-excludable in consumption
– Examples• Warning systems (tornado sirens), landscapes, genetic diversity,
defense
– Example - ecosystem services
• Efficiency is not achieved
– Free rider
– Absence of excludability
Public Goods
• The benefits people obtain from ecosystems
• Necessary to support and maintain life and support economic activities
• Many of these services lack adequate substitutes, thereby requiring careful stewardship of the ecosystems providing them
• Classification
– Provisioning (food and water)
– Regulating (flood, gas and disease control)
– Cultural (spiritual, recreation, and cultural benefits)
– Supporting (nutrient cycling) services
Ecosystem Goods / Services
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Study Value
O’Rear Henry (1998) Nonmarket value for rice production and hunting
$132/acre
Turner (1991) Consumers' surplus for boating in Lake
Livingstone $35.21
Bowker and Stoll
(1988)
Whooping crane annual WTP per person $21-149
Kreuter et al. (2001) $5.58/ha/yr ($6.24 million) decline in ecosystem
services value for 1976-1991 from rangeland to
urbanized use in San Antonio area
Costanza et al.
(1997)
Ecosystems provide estimated $33 trillion in
services annually
Rosenberger and
Loomis (1999)
Ranch open space value to tourist $1,132/ group
trip
Ecosystem Value Examples
consumer 1
0
2
4
6
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10
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18
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0 5 10 15 20 25 30Quantity
Do
llars
consumer 2
0
2
4
6
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10
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0 5 10 15 20 25 30Quantity
Do
llars
0
2
4
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10
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0 5 10 15 20 25 30Quantity
Do
llars
+ =
Market
KEY Horizontal summation of individual consumers’ demand
curve to get market demand curve
Only consumer 1
in the market
Both consumers
in the market
Market Goods - Review
Market Goods - Review
0
2
4
6
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10
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0 5 10 15 20 25 30Quantity
Do
llars
6 11 17
Demand
Supply
Market Equilibrium
P* = 7 Q*=17
Consumer 1
Q=6 at price 7
Consumer 2
Q=11 at price 7
7
12
0
5
10
15
20
25
30
35
0 5 10 15 20Quantity
Do
llars
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Demand
Vertical Summation of
consumer demand curves
Why – indivisible (non-rival
and non-excludable) in
consumption
Only consumer 2
Red demand curve
Both consumers
Public Goods - Ecosystem
0
5
10
15
20
25
30
35
0 5 10 15 20Quantity
Do
llars
3 8
Demand
Supply
Society’s Efficient Point
S = D
Market
P*=10, Q*=8
Problem – indivisible
Public Goods
• At price =$10
– Consumer 1 -- 3 units of ecosystem services
– Consumer 2 -- 8 units of ecosystem services
• Let consumer 1 purchase first
– Consumer 1 buys 3 units
– Consumer 2 free rides and buys only 5 units but consumes 8 units (3 units from consumer 1)
• Let consumer 2 purchase first
– Consumer 2 buys 8 units
– Consumer 1 free rides and buys none but consumes 3 units (3 units from consumer 2)
Public Goods – Free Rider
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• Public goods are NOT goods supply by the public
• Goods that are indivisible in consumption
– Non-rival
– Non-excludable
• Market will undersupply public goods
– Free rider problem
– Vertical vs. horizontal summation
Public Goods – Summary
• In the U.S. private ownership– 60% of land
– virtually all cropland
– 62% grasslands, pastures, rangeland
– 63% forest lands
• 95% of all species listed by endangered species have some habitat on private land
• Competing uses for land other than an ecosystem services
• Market will under provide ecosystem services on private land
Importance to Land Economics
• Voluntary actions
– No govt. incentives or regulations
• Government persuasion
• Command and control
• Private markets
• Market type incentives
– Easements• Conservation
• Development rights
– Reserve programs
– Wetlands mitigation
Types of Actions
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• Voluntary actions
– No govt. incentives or regulations
• Government persuasion
• Command and control
• Private markets
• Market type incentives
– Easements• Conservation
• Development rights
– Reserve programs
– Wetlands mitigation
Types of Actions
• Command and control aspects - 1973
• Provisions limit the actions of both government and private landowners whose property provides critical habitat for listed species
• Prohibits takings
• Landowners’ incentives– avoid designation
– preemptive practices
• Spillover effects
• Has it worked?
• Essential flaw
Endangered Species Act
Texas Endangered Species Program
County Number of SpeciesBrazos 35Bexar 72Lubbock 23Harris 49El Paso 58Tarrant 28Travis 67Current as of Feb. 2017
http://tpwd.texas.gov/gis/rtest/
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• Private firms – best interest to protect ecosystem services
– Ecotourism, hunting ranches, fishing clubs
• Usually some degree of excludability
• Small impact
– locally important
• Voluntary
Private Market
• An agreement between landowner and the “holder” of the conservation easement under which the landowner voluntarily restricts certain uses of the property to protect natural, productive, or cultural features
• Landowner retains legal ownership– but rights restricted usually lowers value
• Why use?– Desire to protect the land
– Legal and tax purposes
Conservation Easements
http://conservationeasement.us/browse/map - updated Feb 2017
Conservation Easements
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• Type of easement owner sells the rights to develop the land
• Compare to conservation easement
– Sell of rights vs. giving away the rights
– Generates income compared to generating tax savings – general
• Started in the mid 1970’s
Purchase of Development Rights
http://www.farmlandinfo.org/statistics as of Jan. 2018
Purchase of Development Rights
State-Level Program Activity Totals - totals not by year.
2010 2011 2012 2013 2014 2015 2016 2017
Easements or Restrictions Acquired 11,899 12,415 12,970 13,450 13,981 14,541 15,020 15,551
Change 516 555 480 531 560 479 531
Acres protected 2,023,230 2,185,996 2,284,005 2,373,470 2,454,702 2,579,878 2,672,364 2,799,539
Change 162,766 98,009 89465 81232 125176 92486 127,175
Program funds spent to date in millions 3,058 3,243 3,416 3,622 3,782 3,887 3,969 4,103
Additional funds millions 185 172 205 160 105 82 133
Dollars / acre 1,512 1,484 1,496 1,526 1,540 1,507 1,485 1,466
Additional $/ AC 1,138 1,763 2,301 1,966 840 892 1,049
http://www.farmlandinfo.org/statistics as of Jan. 2019
Purchase of Development Rights
State-Level Program Activity Totals - totals not by year.
2012 2013 2014 2015 2016 2017 2018
Easements or Restrictions Acquired 12970 13450 13981 14541 15020 15551 16065
Change 555 480 531 560 479 531 514
Acres protected 2284005 2373470 2454702 2579878 2672364 2799539 2943019
Change 98009 89465 81232 125176 92486 127175 143480
Program funds spent to date 3.42E+09 3.62E+09 3.78E+09 3.89E+09 3.97E+09 4.1E+09 4.25E+09
Additional funds ? 2.06E+08 1.6E+08 1.05E+08 82455702 1.33E+08 1.42E+08
Dollars / acre 1495.837 1526.193 1540.733 1506.726 1485.436 1465.627 1442.53
Additional $/ AC 2301.167 1965.564 839.8653 891.5479 1049.384 991.8602
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Acres Under Development Rights
http://www.farmlandinfo.org/statistics
As of Jan. 2019
Number of Easements
http://www.farmlandinfo.org/statistics
As of Jan. 2019
Acres / Easement
http://www.farmlandinfo.org/statistics
As of Jan 2019
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Cost of Development Rights
http://www.farmlandinfo.org/statistics
As of Jan. 2019Nominal dollars
Percent Program Funds
http://www.farmlandinfo.org/statistics
As of Jan. 2019
• Pays farmers to retire land from production
– yearly compensation
– 50% (usually) of initial costs for conservation practices
• Targets– highly erodible land - originally
– 1990 change to environmental benefit index
– wetlands, streamside buffers, wildlife habitat, and other lands determined to have ecosystem service benefits
• Differs from ESA and easements
Conservation Reserve Program
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Monthly Summary CRP November 2016
https://www.fsa.usda.gov/programs-and-services/conservation-programs/reports-and-statistics/conservation-reserve-program-statistics/index
Acres all programs 23.45 mil ac
Number of contracts 635,435
Number of farms 357,315
Average rental payment – all programs $76 / ac
FY 2016 Projected outlays
Rental Payments $1,577 mil
Cost-share $106 mil
Incentives $134 mil
Total $1,817 mil
Monthly Summary CRP October 2016
https://www.fsa.usda.gov/programs-and-services/conservation-programs/reports-and-statistics/conservation-reserve-program-statistics/index
Acres all programs 22.46 mil ac
Number of contracts 604,017
Number of farms 339,391
Average rental payment – all programs $81 / ac
FY 2016 Projected outlays
Rental Payments $1,778 mil
Cost-share $107 mil
Incentives $56 mil
Total $1,942 mil
CRP Enrollment
https://www.fsa.usda.gov/Assets/USDA-FSA-Public/usdafiles/Conservation/PDF/CRPEnrollmentMar2016.pdf
Capped by law at 24 million acres, Sept 30, 2016 no new enrollments
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CRP Changes in Enrollment
https://www.fsa.usda.gov/programs-and-services/conservation-programs/reports-and-statistics/conservation-reserve-program-statistics/index
• Benefits
– Farmer – cash payments
– Ecological
• Drawbacks
– Payment tied to ag. rent and not ecological services
– Monopsony
– Uncertainty• Additivity
• Leakage / Slippage
• Taxes – can lead to distortion
Benefits / Drawbacks
Wetlands Reserve Program
http://www.nrcs.usda.gov/wps/portal/nrcs/detail/national/programs/easements/wetlands/?cid=nrcs143_008419
The Wetlands Reserve Program (WRP) is a voluntary program offering
landowners the opportunity to protect, restore, and enhance wetlands on
their property.
Enrollment Options• Permanent Easement: A conservation easement in perpetuity. USDA pays 100
percent of the easement value and up to 100 percent of the restoration costs.• 30-Year Easement: An easement that expires after 30 years. USDA pays up to
75 percent of the easement value and up to 75 percent of the restoration costs.
• Restoration Cost-Share Agreement: An agreement to restore or enhance the wetland functions and values without placing an easement on the enrolled acres. USDA pays up to 75 percent of the restoration costs.
• 30-Year Contract: A 30-year contract option is only available on tribal lands. USDA pays up to 75 percent of the restoration costs.
Authority expired September 30, 2013 – currently no new lands.
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Wetlands Reserve Program
http://www.nrcs.usda.gov/Internet/FSE_MEDIA/stelprdb1075124.jpg
Prairie Pothole Region / Flyway
http://www.fws.gov/kulmwetlands/pothole_map.gif
Wetlands Mitigation
http://water.epa.gov/lawsregs/guidance/wetlands/upload/2003_05_30_wetlands_CMitigation.pdf
• Clean Water Act (CWA)• objective is to restore and maintain the chemical, physical, and
biological integrity of the Nation’s waters.
• Toward achievement of this goal• the CWA prohibits the discharge of dredged or fill material into
waters of the United States unless a permit issued by the Army
Corps of Engineers or approved State under CWA Section 404
authorizes such a discharge.
• Compensatory Mitigation• required to replace loss of wetlands and aquatic resources
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Compensatory Mitigation
http://water.epa.gov/lawsregs/guidance/wetlands/upload/2003_05_30_wetlands_CMitigation.pdf
Restoration: Re-establishment or rehabilitation of a wetland or other
aquatic resource with the goal of returning natural or historic functions and
characteristics to a former or degraded wetland.
•
Establishment (Creation): The development of a wetland or other aquatic
resource where a wetland did not previously exist through manipulation of the
physical, chemical and/or biological characteristics of the site.
•
Enhancement: Activities conducted within existing wetlands that heighten,
intensify, or improve one or more wetland functions. Enhancement is often
undertaken for a specific purpose such as to improve water quality, flood
water retention or wildlife habitat.
•
Preservation: The permanent protection of ecologically important wetlands
or other aquatic resources through the implementation of appropriate legal
and physical mechanisms (i.e. conservation easements, title transfers).
Mechanisms - Mitigation
http://water.epa.gov/lawsregs/guidance/wetlands/upload/2003_05_30_wetlands_CMitigation.pdf
• Permittee-Responsible Mitigation• Restoration, establishment, enhancement or preservation of
wetlands undertaken by a permittee
• Mitigation Banking• Permittees, upon approval of regulatory agencies, can purchase
credits from a mitigation bank to meet their requirements for
compensatory mitigation
• In-Lieu Fee Mitigation• permittee provides funds to an in-lieu-fee sponsor (a public
agency or non-profit organization).
Summary
• Just some of the programs
• just scratched the surface
• Wide-range of programs with different incentives
– know the differences and the impacts on
landowners