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Video - Considering pollution in input decisions

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Agriculture, Economics and Nature

Universidad de Australia Occidental

4.7 (192 calificaciones) | 16K estudiantes inscritos

Sound economic thinking is crucial for farmers because they depend on good economic decision making to survive. Governments depend on economic information to make good policy decisions on behalf of the community. This course will help you to contribute to better decision making by farmers, or by agencies servicing agriculture, and it will help you to understand why farmers respond to policies and economic opportunities in the ways they do. You can use this course to improve your skills and knowledge, and to assess whether this is a subject that you'd like to study further. The course includes high-quality video lectures, interviews with experts, demonstrations of how to build economic models in spreadsheets, practice quizzes, and a range of recommended readings and optional readings. Assessment is by a final exam. The key economic principles that we’ll learn about can help us understand changes that have occurred in agriculture, and support improved decision making about things like agricultural production methods, agricultural input levels, resource conservation, and the balance between agricultural production and its environmental impacts. There are literally thousands of agricultural economists around the world who work on these issues, so there is a wealth of knowledge to draw on for the course. Watch a brief video about our course here: https://www.youtube.com/watch?v=T_IeYGpeqV8

Revisiones

4.7 (192 calificaciones)

5 stars
146 ratings
4 stars
38 ratings
3 stars
7 ratings
2 stars
1 ratings

RC

Dec 19, 2016

Interesting course on Agriculture and Economics, very useful to revise important economic concepts and also to learn more about agriculture. Highly recommended.

BW

Jul 15, 2018

Clear and concise teaching, combined with helpful and accessible resources. A good basic guide to agriculture and agricultural related economics.

De la lección

The economics of agricultural inputs

Week 3 looks at the relationship between inputs and outputs, the optimal level of an input, the question of pollution from inputs, and flat payoff functions.

Video - Considering pollution in input decisions7:01

Impartido por:

Professor David Pannell, BSc(Agric), BEc, PhD
UWA School of Agriculture and Environment
Jacob Hawkins, BA(Biol), MESM, PhD
School of Agricultural and Resource Economics

Transcripción

[MUSIC PLAYING]

This time we're going to talk about water pollution again.

We've covered it in a previous segment.

But we're going to look at in a different way.

We're going to ask the question, how much does

the possibility of water pollution resulting from use

of an input affect the optimal decision-making about the level

of that input that a farmer should be using?

And we're going to use water pollution resulting

from fertilizers as the example.

So there are many examples around the world of fertilizers

causing water pollution in nearby water bodies.

And it's not hard to find photos on the internet of really

green and ugly bodies of water.

So it's an issue that's a very important issue and one

that governments are concerned about.

And one that is worth asking, well,

what are some of the things that we could do about it?

So in the last segment, we showed

how economists can identify the optimal rate

of an input such as a fertilizer,

and optimal in the sense that it maximizes the farmer's profit.

But in doing that, we've really ignored

these other non-profit factors such as fertilizer.

So we've ignored the possibility of an increasing

risk of water pollution at higher fertilizer rates.

So we can account for that if we can estimate

what that relationship is between fertilizer

rates and pollution.

So let's assume that we can.

We have the information that identifies

what's the cost, the additional cost,

related to water pollution that will result

from using higher and higher levels of fertilizer

in a particular farm and paddock.

And in this diagram, I've assumed

that we have that information.

And just to illustrate it at least,

I've assumed that it's linear.

It may or may not be linear.

If we know that it's not linear, that's fine.

We can include a non-linear function.

But just for this example, I've graphed it

as a linear function.

Once we have that information, what we can do

is add it on to the cost function for the farmer.

So that's what I've done in this graph.

The dotted line-- the dashed line in this graph

is the profit function for the-- I'm

sorry, not the profit function, the cost function

for the farmer due to the cost of purchasing and applying

the fertilizer.

It doesn't factor in the pollution cost.

But the next line above that, the solid line,

is the addition of the farmer's cost plus the pollution cost.

And then we can go through the same sort of process

that we went through in the previous segment of trying

to identify the optimal level of application of fertilizer.

And you can see that moving the cost curve up, effectively

rotating it around in that way, indicates

that the optimal level of fertilizer input

should be slightly reduced or somewhat reduced.

Now, the extent to which it's reduced

will depend on the shape of both the production function,

and that's the revenue curve, and the level of cost

that the fertilizer is causing, and that's

a case-by-case thing.

But in this example, you can see that we've

reduced the optimal level of fertilizer by a bit.

We can also do that as we did in the previous segment.

We can calculate the profit function

as the difference between the revenue function and the cost

function.

We've got two different cost functions in this case,

so that we've got two different profit functions.

And again, you can see that the initial profit function

that only factors in the profit to farmers, the dashed one,

has a particular optimal level of fertilizer use.

Once we factor in the cost of pollution,

that curve moves down.

But it moves down by more the further to the right you go.

And so the optimal level of fertilizer

falls, so the dashed line moves a bit to the left.

Now, at the moment, I've assumed that we

know what the pollution cost function looks like,

but that can be pretty tricky.

We may or may not know what that cost function looks like.

And as I said, I assumed that that cost function

is a straight line, and it may or may not be straight.

It might be quite a non-linear shape in some cases.

And depending on what that shape is,

then that will influence the optimal fertilizer rate

accounting for pollution.

So economics-- this, I guess, is typical for economics,

and particularly agricultural economics.

You usually need to have good information about the biology

and the physical aspects of the problem,

not just the financial, more obviously,

economic parts of the problem in order

to answer the economic questions.

It's a mixture.

It's an integration of the biology and the economics

in order to answer these management questions.

So some of the implications of this

are that in areas where water bodies are at risk,

farmers who are responding optimally

from a societal perspective would

use a lower rate of fertilizer if they

factored in the pollution costs.

But however, they may not do this

without support or some requirement

for them to do so by government.

And so in week 6, we'll look at government policy,

including government policy about these sorts of things.

I also mentioned briefly that pollution is what we've already

referred to in previous segments as an external cost.

So this is a good example of where

it may be appropriate for a government

to step in to try and reduce the level of an external cost.

Just something we talked about in week 2.

Of course, this type of pollution from nutrients,

from fertilizers, is a long way from being

the only type of pollution that's relevant.

We also previously talked about the problem of sediment

getting into waterways, the probability of problems

from pesticides of various types.

So the same sorts of production function thinking

could be used to look at optimal changes to their management

as well.

So in summary, agricultural pollution

imposes costs on society that aren't always

reflected in farmer's decisions about their input levels.

And if they did factor their pollution considerations in,

they would use lower input rates in those situations

where the inputs are causing pollution.

[MUSIC PLAYING]

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