Abstract
Based on a welfare approach using a partial equilibrium model coming from microeconomics, this paper analyzes whether a local regulation aimed at reducing risks due to pesticides should be imposed at the production level or the consumption level. This paper characterizes the economic impact of these possible regulations from a theoretical point of view. Local and nonlocal producers compete only in the local market regarding selling conventional and organic products. Local producers incur variable costs related to reducing the risk of damage resulting from their new organic production methods. A local policymaker maximizing local welfare chooses either a regulation that is imposed on its local producers via production requirements or on all local and nonlocal producers via retail requirements that directly affect consumption. We show that local regulation is selected for relatively large values of damage. In this case, the organic regulation is influenced by whether the damage is incurred by residents and the environment close to the production site or by consumers. If the damage is incurred by residents and the environment close to the production site, only regulations targeting the local producers are selected, which improves the profits for nonlocal producers. Concerning damage incurred by consumers after their consumption, each type of regulation is selected depending on the cost of the safe technology, but the regulation targeting the consumption level harms nonlocal producers.
Highlights
Modern conventional agriculture brings about high labor productivity and output
Using a simplified framework focusing on local regulations and welfare risks, this paper led to new results
We showed that the local regulation imposing organic production on local producers may benefit nonlocal producers, which pleads for the development of local regulations
Summary
Modern conventional agriculture brings about high labor productivity and output. due to the massive use of agricultural chemicals such as synthetic fertilizers and pesticides, both the environment and foods are polluted to varying degrees. A stylized and theoretical framework with very simple assumptions is presented, and numerous extensions are discussed at the end of the paper This partial-equilibrium model adopts the classical microeconomic method, assuming that the agricultural product market is completely competitive, and the product is divided into high-quality organic products and low-quality traditional products. If decided on a large scale, organic farming may have a bigger climate impact than conventional farming (or at least it does not allow an improvement in the carbon footprint of farming), because of greater areas of arable land required to outweigh the yield reduction linked to organic farming [31] These greater areas of “organic lands” leads to more greenhouse gas emissions, an issue not taken into account in this paper focusing on pesticides only. We use mathematical derivation to build theoretical models for the economic welfare impact of local regulations, often overlooked by the literature
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