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The Marginal Cost Of Agri-Environmental Services

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  • Sauer, Johannes
  • Wossink, Ada

Abstract

We provide a new approach for assessing the cost of marginal ecosystem changes and the effectiveness of agri-environmental schemes. The approach is based on a theoretical and empirical analysis of the bio-economic production interactions between marketed outputs and non-marketed ecosystem services at the micro level. To frame the economic nature of the problem, we employ a generalized joint production model in combination with cost minimization. The generalized joint production framework allows for the consideration of complementary, substitutive and competitive relationships between agricultural production and non-marketed ecosystem services generation and avoids double counting. From this theoretical model we distinguish three theoretical cases depending on the imposed minimum acceptable level of the non-marketed ecosystem services. We employ farm level panel data for the UK to empirically investigate these cases. More specifically, to represent and evaluate the production structure, we estimate first- and second-order elasticities derived from a flexible transformation function. Results show that the majority of farms produce agricultural output and ecosystem services in a complementary relationship. Generation of multiple ecosystem services on the same farm showed either a substitutive or competitive relationship. A change in the composition of the ecosystem services output would have very different implications for individual farms.

Suggested Citation

  • Sauer, Johannes & Wossink, Ada, 2010. "The Marginal Cost Of Agri-Environmental Services," 50th Annual Conference, Braunschweig, Germany, September 29-October 1, 2010 93939, German Association of Agricultural Economists (GEWISOLA).
    • Handle: RePEc:ags:gewi10:93939
    DOI: 10.22004/ag.econ.93939
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