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This paper analyzes the main weaknesses and key avenues for improvement of nutrient policies in the Baltic Sea region. HELCOM’s Baltic Sea Action Plan (BSAP), accepted by the Baltic Sea countries in 2007, was based on an innovative ecological modeling of the Baltic Sea environment and addressed the impact of the combination of riverine loading and transfer of nutrients on the ecological status of the sea and its sub-basins. We argue, however, that the assigned country-specific targets of nutrient loading do not reach the same level of sophistication, because they are not based on careful economic and policy analysis. We show an increasing gap between the state-of-the-art policy alternatives and the existing command-and-control-based approaches to the protection of the Baltic Sea environment and outline the most important steps for a Baltic Sea Socioeconomic Action Plan. It is time to raise the socioeconomic design of nutrient policies to the same level of sophistication as the ecological foundations of the BSAP. Keywords Cost-effectiveness Incentives Innovation Manure Performance-based policy Abstract This paper analyzes the main weaknesses and key avenues for improvement of nutrient policies in the Baltic Sea region. HELCOM’s Baltic Sea Action Plan (BSAP), accepted by the Baltic Sea countries in 2007, was based on an innovative ecological modeling of the Baltic Sea environment and addressed the impact of the combination of riverine loading and transfer of nutrients on the ecological status of the sea and its sub-basins. We argue, however, that the assigned country-specific targets of nutrient loading do not reach the same level of sophistication, because they are not based on careful economic and policy analysis. We show an increasing gap between the state-of-the-art policy alternatives and the existing command-and-control-based approaches to the protection of the Baltic Sea environment and outline the most important steps for a Baltic Sea Socioeconomic Action Plan. It is time to raise the socioeconomic design of nutrient policies to the same level of sophistication as the ecological foundations of the BSAP. Keywords Cost-effectiveness Incentives Innovation Manure Performance-based policy

We characterize optimal investment in pollution control measures with uncertain effects that can be learned by experimentation. The anticipation of learning through experimentation introduces two effects. The Inquisitive Effect appears because the planner wants to invest in geoengineering to gather socially valuable information on its effects. This effect encourages investments in geoengineering and may justify field tests even where the expected benefits fall short of the costs. The Flexibility Effect stems from the planner optimally preparing for the post-learning stage, where the field test is either ramped up or scaled down, depending on the outcome of the experiment. This effect can encourage or discourage investments in geoengineering. We demonstrate this set-up through an economic analysis of an artificial oxygenation scheme designed to mitigate eutrophication in the Baltic Sea and find that while the expected marginal benefit falls short of costs, a field test representing some 10 percent of full deployment would be optimal.

This chapter introduces topics, concepts, relationships, and tools that are essential to understanding the effects of agriculture on water quality, the significance of these effects, and economic and technological drivers of water pollution from agriculture. The chapter also introduces a systematic watershed-based paradigm for understanding and addressing agriculture and tools used for watershed planning. The chapter begins with a description of the types of water quality problems that result from agricultural production and their economic and ecological significance. The evolution of agriculture as a significant source of water quality problems is connected to economic and technological developments in agricultural production. The chapter turns from causes and consequences to introducing physical processes and relationships at multiple spatial scales, from field to watershed, that must be understood to design effective and efficient solutions. The chapter concludes with the introduction to the watershed-based management and various types of modeling tools used in planning and policy design.

Water quality auctions provides a means to promote spatial targeting of water protection and improve budgetary cost-efficiency relative to widely applied flat rate policies producing higher water quality benefits from a given conservation budget. Using performance-based indicators as a part of auction mechanism helps to further improve environmental outcomes of conservation auctions. The chapter collects experience from conservation auction, mostly applied to promote multiple environmental goals at the same time. The preferred auction for water protection purposes is water quality auction. They are rare but Great Miami River and Pennsylvania Nutrient Credit Trading Programs provide the first positive examples. Water quality auctions complement the toolbox of nutrient policies; they can be used as such in sensitive watersheds or as a part of water quality trading programs or traditional practice-based policies.

A key theme of this book is that producers’ economic choices are the key determinants of water quality problems. Designing and implementing policies that are effective in managing water pollution from agriculture and do so without imposing undue social costs require an understanding of farm decisions making. This chapter introduces economic concepts and tools for analyzing farm decision making affecting key choices determining water quality outcomes. It begins with a brief introduction to key choices and objectives in farm decision making. The chapter then introduces standard economic models used to explain producers’ choice of crops, production inputs, and the spatial distribution of agricultural activity. These models are used to illustrate how various choices affecting water quality outcomes differ between market driven agricultural landscapes in which the costs of water pollution are external to producers, and agricultural landscapes in which choices balance the social benefits and costs of agricultural production. Subsequent sections introduce additional concepts and tools relevant to farm decision making on polluting inputs, crops, the spatial structure of production, and the use of best management practices. Concepts and models are illustrated by simple numerical examples and by empirical applications to significant water quality problems in the Gulf of Mexico and Chesapeake Bay.

This chapter presents basic economic and institutional background material essential for the book. The first part of the chapter introduces concepts and methods used in economics to explain environmental externalities and the need for public policy to address them. The first part also discusses economic issues in the choice of environmental policy targets and choice of policy instruments to achieve them. The second part of the chapter introduces water pollution control policies for agriculture with a focus on the United States and European Union. The discussion identifies weaknesses in existing policy architectures that limit water quality gains while unnecessarily increasing the social costs of pollution control. The chapter establishes a need for new approaches to water pollution control in agriculture and introduces economic concepts and methods useful for analyzing existing policies and strategies for improving the economic and ecological performance of water quality protection policies for agriculture.

Livestock production in developed countries has undergone profound changes in recent decades and this development seems to continue apace. One consequence is that manure is being - and will be - produced on fewer but larger farms. Data on the bulk of manure nutrients from each country are published by Eurostat, but it is not known how manure is distributed across farms of different sizes. This study 1) puts forward an estimate of the distribution of main manure nutrients between farms of different sizes, 2) estimates how this distribution will change in the near future and 3) discusses the land use effects of this development. Results suggest that by the year 2030 farms housing > 500 livestock units will produce more than two-thirds of all manure phosphorus, whereas the proportion in 2010 was one-third. With the Nitrates Directive limiting the use of organic nitrate of manure, growing farms need to acquire, or conclude contracts for the use of, 4.9 million hectares from exiting farms or the open market in order to comply with manure spreading requirements. This shift will involve 64% of the total spreading area of 2010 and 15% of the total utilized agricultural area of the regions studied. In light of these predictions, international nutrient policies should consider the evolution of farm structure in general and manure phosphorus agglomeration in particular. Also salient is improved co-operation beyond the single farm level to ensure the functionality of crop-livestock systems.

To successfully combat eutrophication caused by agricultural P loads, we need to understand how various forms of P respond to mitigation measures and thus how they contribute to algal growth. Failure to balance mitigation measures targeting dissolved inorganic P (DIP) and P in eroded soil (PP) may lead to economically inefficient measures at best, and to aggravated eutrophication at worst. We model dynamically optimal eutrophication management in a P-limited and SO4-containing water body by taking into account the O2 available and the coupling between the C, Fe, S and P cycles. We show that optimal management would put more weight on mitigating DIP than PP, and that the emphasis on DIP should be particularly strong in eutrophic water bodies. To foster influential and cost-efficient policies, we urge defining water body-specific multipliers to commensurate the main P forms into eutrophying phosphorus, much as greenhouse gases are converted to their CO2 equivalents.

The evolution of phosphorus (P) management decision support tools (DSTs) and systems (DSS), in support of food and environmental security has been most strongly affected in developed regions by national strategies (i) to optimize levels of plant available P in agricultural soils, and (ii) to mitigate P runoff to water bodies. In the United States, Western Europe, and New Zealand, combinations of regulatory and voluntary strategies, sometimes backed by economic incentives, have often been driven by reactive legislation to protect water bodies. Farmer-specific DSSs, either based on modeling of P transfer source and transport mechanisms, or when coupled with farm-specific information or local knowledge, have typically guided best practices, education, and implementation, yet applying DSSs in data poor catchments and/or where user adoption is poor hampers the effectiveness of these systems. Recent developments focused on integrated digital mapping of hydrologically sensitive areas and critical source areas, sometimes using real-time data and weather forecasting, have rapidly advanced runoff modeling and education. Advances in technology related to monitoring, imaging, sensors, remote sensing, and analytical instrumentation will facilitate the development of DSSs that can predict heterogeneity over wider geographical areas. However, significant challenges remain in developing DSSs that incorporate "big data" in a format that is acceptable to users, and that adequately accounts for catchment variability, farming systems, and farmer behavior. Future efforts will undoubtedly focus on improving efficiency and conserving phosphate rock reserves in the face of future scarcity or prohibitive cost. Most importantly, the principles reviewed here are critical for sustainable agriculture.

Large animal facilities generate manure in excess of their production needs leading to excessive nutrient loading. Differences in manure contents of phosphorus and nitrogen relative to crop requirements exacerbate loading of the more abundant nutrient, frequently phosphorus. Current regulations that restrict manure utilization and animal production, but not at crop lands leads to suboptimal resource allocation and under utilization of manure in crop production. The transboundary character of nutrient loading further complicates the management of manure phosphorus and nitrogen. Due to differences in environmental characteristics, upstream and downstream regions may have differing objectives towards controlling nitrogen and phosphorus surpluses. We consider optimal management of manure in a stylized two-agent, two-nutrient and two-region model. We show that trade-offs in managing manure phosphorus and nitrogen, inability to regulate manure applications outside animal farms’ field areas and regional differences in environmental targets can severely impede the effectiveness of regulation. Depending on the environmental and economic characteristics, tightening upstream regulation with respect to the loading of one nutrient might increase the downstream loading of the other and might even decrease the total welfare.

We examine environmental auctions on working agricultural lands. We organized a discriminatory auction where farmers were asked to make bids on spreading gypsum on their fields to reduce phosphorus loads to surface waters. The parcel-specific bids were ranked based on their load reduction–compensation ratios. To assess load reductions, we built an environmental benefit index (EBI) based on three factors: P-status of the soil (phosphorus available for crops), field slope and location with respect to waterways. As the per tonne price of gypsum delivery from the factory was higher for small quantities, the auction format allowed bundling of field parcels to reduce transportation costs. We evaluate auction's ability to target the environmental (or abatement) measures to field parcels with the highest load reduction potential and analyse the economic efficiency of the auction by comparing the pilot auction with simulated bidding behaviour and with hypothetical flat rate payment schemes. The pilot auction targeted the environmental measures effectively. It was also more efficient than a flat rate payment, even when the flat rate scheme was combined with an EBI eligibility criterion.

Auctions have been applied in agri-environmental policy, serving as a key tool to overcome information asymmetries and generate important cost savings for governments. The efficiency of agri-environmental auctions depends on ensuring sufficient participation and avoiding a ‘learning by experience’ situation. In designing successful auctions, it is important to acknowledge farmer characteristics that might increase the adaptability of auctions and also recognize whether past experience affects future participation. This paper uses data from an auction experiment conducted in Nurmijarvi, Southern Finland. We account for socio-demographic, spatial and attitude variables and investigate their effect on the probability of past and future auction participation. Due to the small number of actual participants, we employ a relogit model to correct the coefficient estimates derived by a binary logit model. According to the analysis, large-scale farmers are more likely to have participated in the pilot aucti...

This article puts forward a model of the role of phosphorus in crop production, soil phosphorus dynamics and phosphorus loading that integrates the salient economic and ecological features of phosphorus management, with grain production in southern Finland as an application. The model accounts for the links between phosphorus fertilization, crop yield, accumulation of soil phosphorus reserves, and phosphorus loading into waterways. It can be used to guide precision phosphorus management as a means to mitigate agricultural phosphorus loading. Erosion control is considered as an additional measure to reduce phosphorus loading through soil loss. A dynamic programming approach and numerical solution method are used to analyze the intertemporally optimal combination of fertilization and erosion control and the associated soil phosphorus development. The optimal fertilizer application rate changes markedly over time in response to changes in the soil phosphorus level. Erosion control was found to increase welfare only on land that is highly susceptible to erosion.

We analyse optimal phosphorus fertilisation and erosion control policies in a spatial, dynamic, steady-state framework. First-best instruments to incentivise farmers to undertake socially optimal choices are analysed both analytically and empirically. An empirical illustration is presented for a cereal production area of 3 hectares. We find that taxes on phosphorus use can be levied with equal effect either on fertiliser use or directly on soil phosphorus. However, a tax on soil phosphorus is simpler and poses lower information requirements for the social planner. In addition, the potential differences in socially and privately applied discount rates are shown to affect optimal tax rates. Oxford University Press and Foundation for the European Review of Agricultural Economics 2010; all rights reserved. For permissions, please email journals.permissions@oxfordjournals.org, Oxford University Press.

Fosforilannoituksen järkevää tasoa on viime aikoina puitu niin akateemisessa kirjallisuudessa, ammattilehdissä kuin yleismediassakin. Vallitseva näkemys vaikuttaa olevan (katso mm. Valkama ym. 2009), että fosforilannoituksen taso on yhä liian korkea ja sitä voitaisiin laskea huomattavasti satojen (so. voittojen) siitä juuri kärsimättä. Lannoitustasojen alentamisen myötä vähennettäisiin myös fosforihuuhtoumia. Esimerkiksi Hilden ym (2007) esittävät, että ’fosforin käyttöä selittävät pääosin muut tekijät kuin taloudellisesti rationaalinen toiminta’. Koska kasvien satovaste fosforin suhteen saadaan pääasiassa maan helppoliukoisen fosforin tasosta, vuotuisen fosforilannoituksen taloudellisesti järkevä tasoa ei voida määritellä siitä irrallaan. Helppoliukoinen fosfori kertyy tai poistuu verkkaisesti lannoitteessa saadun ja sadon mukana poistuvan fosforin erotuksen ajamana. Näin ollen taloudellinen päätöksenteko tulee nähdä yli ajan kulkevana tehtävänä, jossa fosforilannoitus on ohjausmuuttuja ja maaperään kertynyt helppoliukoinen fosfori on ohjausmuuttujan avulla ajettava tilamuuttuja. Tutkimuksessamme rakennetaan dynaaminen optimointimalli, joka huomioi maaperän kasveille käyttökelpoisen fosforivarannon tason, sen kehittymisdynamiikan, satotasot sekä liukoisen ja partikkelifosforin huuhtouman. Mallin avulla voidaan selvittää, mikä on yhteiskunnallisesti järkevä pitkän aikavälin fosforilannoitustaso sekä suojavyöhykkeiden leveys kaltevuudeltaan erilaisilla pelloilla. Malli ratkaisee parhaan mahdollisen vuotuisen fosforilannoituksen aikauran, kun lähdetään liikkeelle maaperäfosforin eri tasoista. Malli osoittaa, että fosforilannoitus ja maaperäfosforin taso ovat linkitettävissä yhden taloudellisen optimointitehtävän alle. Tulokset osoittavat, että optimaalinen lannoitus vaihtelee voimakkaasti. Alhaisista fosforivarannon tasoista lähdettäessä lannoitus kannattaa pitää hyvin korkeana, jopa 70 kg/ha. Toisaalta selvästi pitkän aikavälin tason yläpuolella olevilla pelloilla optimaalinen lannoitetaso on lähellä nollaa. Tutkimuksessa myös osoitetaan, että korkeiden fosforivarantojen laskeminen on sekä yhteiskunnallisissa että viljelijän yksityisissä intresseissä. Tämä saattaa korostaa mm. neuvonnan roolia ohjauskeinona.

The authors analyze the effect of advance ticket sales (ATS) on Finnish football league attendances. We postulate a linear ordinary least squares (OLS) model for log-attendance data from the years 1991-2007. Match day weather, timing of the match, team performance and match characteristics together with team, year, month, and stadium- specific dummies are used as the other explanatory variables. The model explains the data very well. The results of two alternative approaches suggest that offering the option of buying the tickets in advance has had an isolated positive effect on attendance for the associated teams.

The Baltic Sea and the Chesapeake Bay share many characteristics. Both are shallow, brackish marine areas that suffer from eutrophication. Successful policies targeting point source pollution have lowered nutrient loads in both areas, but achieving the desired marine quality will require further abatement: efforts may be extended to more complicated and expensive pollution sources, notably agricultural nonpoint loads. Despite their ecological similarities, the two watersheds have different histories and institutional settings and have thus adopted different policies. Comparing and contrasting the policies reveal ways to improve the efficiency of each and ways to avoid the path of trial and error. No comparison of the parallel protection efforts, which involve expenditures of hundreds of millions of dollars annually, has been carried out to date. The present paper analyzes the policies applied in the two regions, distilling the results into six recommendations for future steps in preserving what are valuable sea areas.

Agriculture is facing stringent requirements for nutrient loss reductions. These reductions should be done cost-effectively. For instance, the European Water Framework Directive (WFD) emphasizes cost-effectiveness in reaching good water status in European river basins by 2015. River Basin Management Plans specify the eventual reduction targets, which will differ between the basins. These differences have implications on cost-effectiveness assessments: changing the level of total abatement changes the relative shares of measures in the cost-effective allocation. In this paper we develop a model which determines the cost-effective allocation of three alternative measures to reduce phosphorus loss from fields. The model allows for comparisons with cost and reductions of all possible allocations. We show that, even for homogenous regions, the cost-effective allocation of measures is strongly dependent on the target level, and that using the allocation from one reduction level as a guideline for other levels violates cost-effectiveness seriously. On the grounds of these results we give recommendations for cost-effectiveness assessments in the context of the WFD., Maatalouden ravinnekuormituksen vähentämiseen onsuuria paineita, ja vähennyksiltä edellytetään usein kustannustehokkuutta. Esimerkiksi EU:n vesipuitedirektiivi edellyttää kustannustehokkuustarkastelua niiltä ylimääräisiltä toimenpiteiltä, joita ympäristöllisiin tavoitteisiin pääseminen vuoteen 2015 mennessä edellyttää. Vesiensuojelualueille asetettavat mahdolliset vähennystavoitteet saattavat poiketa toisistaan merkittävästi. Tämä vaikuttaa kustannustehokkuusanalyysien soveltuvuuteen eri alueiden välillä. Tässä tutkimuksessa pyritään esittelemään ja kvantifioimaan näitä vaikutuksia. Ratkaisemme kustannustehokkaan suojeluratkaisun kolmen eri vesiensuojelumenetelmän kesken fosforin vähennyksen eri tavoitetasoille, ja vertailemme suojeluratkaisujen kustannustehokkuutta eri mittakaavassa toteutettuna. Osoitamme, että jopa homogeenisten alueiden kustannustehokkaat suojeluratkaisut riippuvat voimakkaasti vähennysten kokonaistasosta. Näin ollen eri alueet eivät voi suojelussaan toteuttaa kustannustehokkuutta soveltamalla toisten, vaikkakin samankaltaisten, alueiden kustannustehokkaita suojeluratkaisuja omalle alueelleen, mikäli vähennystavoitteet eroavat toisistaan. Tulosten perusteella otamme kantaa kustannustehokkuusanalyysin käyttöön vesipuitedirektiivin yhteydessä.

We analyze dynamically optimal eutrophication management using two controls, targeted fishing and reduction of external nutrient loads. Fishing removes nutrients from the water ecosystem, and the size of the fish stock also influences eutrophication through food web effects and other mechanisms. We show that fisheries have a role to play in cost-efficient water quality management in combination with external load reductions. Our numerical application considers phosphorus driven eutrophication, agricultural phosphorus abatement and fisheries targeted on cyprinids on a coastal bay in the Baltic Sea. The socially and privately optimal intensity of fishing efforts, phosphorus abatement and the resulting water quality are influenced by damages, revenues and costs. Furthermore, we show that the link between cyprinid fish stock and water quality, and the form of the fishing industry — sole owner or open access — have joint dynamics that lead to very different outcomes. A weak link between cyprinid stock and water quality is associated with socially optimal stock close to its maximum sustainable yield. This maximizes phosphorus removal. With a strong link, socially optimal stock and phosphorus removal are low. Coincidentally, open-access fishing sometimes yields socially desirable outcome automatically — a market failure in industry structure may counteract eutrophication.

We analyze dynamic models with negative externalities occurring from production capital and input use. We uncover a puzzle related to such models: evaluated with a social welfare function, the steady-state outcome of a socially optimal policy, and thus the tail of the corresponding payoff sequence, may yield a smaller social payoff than a market outcome. The main questions we address are under what conditions this phenomenon arises and how general it is. We show that there are always Pareto-optimal policies which lead to the puzzle when the discount rate is fixed. In addition to discounting, the driving force of our results is that the periodic pollution and profits are linked to production capital. We demonstrate the puzzle with a model for controlling phosphorus losses from crop production. We argue that the puzzle should be taken into account in the policy analysis of dynamic problems, including negative externalities.