Interactions Between Agricultural and Environmental Policies: A Conceptual Framework

Abstract

Agricultural policy has a well-documented impact on farmers' production decisions, and those decisions (land, water, and agricultural chemical use) may in turn affect the environment. There is a public perception that existing agricultural policies are linked to agricultural pollution, as exemplified by the conclusions of the recent National Research Council report, Alternative Agriculture (1989). There is only limited theoretical or empirical research addressing these linkages, however. This paper develops a conceptual framework that can be used to analyze the interactions between agricultural and environmental policies and pollution. This framework integrates physical and economic models at a disaggregate level necessary to capture the heterogeneity of the physical environment and the economic behavior of farmers. Following E. Hochman and D. Zilberman (1978), the disaggregate units can be statistically aggregated to a level useful for policy analysis. Agricultural and environmental policies can be categorized according to their effects on the intensive and extensive margins. Combining the different policy instruments with the microeconomic heterogeneity, we find that existing agricultural and environmental policies can have either positive or negative effects of nonpoint source pollution; to infer an aggregate effect requires data that do not currently exist. Our framework provides a basis for empirical investigations of these effects, given adequate data. Moreover, we find that agricultural policy instruments can be used to mitigate pollution if used appropriately.