Determining the Economic Gains from Regulation at the Extensive and Intensive Margins

Posted: 29 Feb 2008

See all articles by Renan-Ulrich Goetz

Renan-Ulrich Goetz

Universitat de Girona

Hansjörg Schmid

affiliation not provided to SSRN

Bernard Lehmann

ETH Zürich

Abstract

Among the second-best approaches for the regulation of pollution, little attention has been paid to the distorting effect of intensive margin policies on the extensive margin. This article shows, within a dynamic framework, that regulation of the intensive margin has to be complemented by regulation of the extensive margin. Depending on the elasticity of the pollution function with respect to nitrogen use, the appropriate regulation at the extensive margin is zero, a tax or a subsidy. We show empirically that combining a nitrogen tax with land-use taxes is about 18 percent more cost efficient than a nitrogen tax alone and 58 percent more efficient than off-site abatement in the form of groundwater treatment.

Keywords: cost efficiency, second-best policies, nitrate leaching, intensive and extensive margin, dynamic optimisation

Suggested Citation

Goetz, Renan-Ulrich and Schmid, Hansjörg and Lehmann, Bernard, Determining the Economic Gains from Regulation at the Extensive and Intensive Margins. European Review of Agricultural Economics, Vol. 33, No. 1, pp. 1-30, 2006, Available at SSRN: https://ssrn.com/abstract=914814

Renan-Ulrich Goetz (Contact Author)

Universitat de Girona ( email )

Girona, 17071
Spain
+ 34 972 418236 (Phone)
+ 34 972 418032 (Fax)

Hansjörg Schmid

affiliation not provided to SSRN ( email )

No Address Available

Bernard Lehmann

ETH Zürich ( email )

Lausanne CH-1001
Switzerland

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