The paper describes a number of developing country applications of economic instruments (EIs), focusing on how policy makers—mostly in Asia and La tin America—have addressed implementation problems. The informational and institutional demands of EIs can be as great as with regulations; in any event, the former are mostly used to complement not replace the latter. Consideration of political acc eptability has conditioned both instrument design (e.g. grandfathering of tradable permits, non-compliance fees rather than simple pollution charges) and phasing of implementation (e.g. starting with local experimentation, setting low initial charge rates). With the advance of market-oriented economic reforms in the developing world, the policy and institutional environment should become more conducive to applying EIs; with greater political openness in many countries, the scope for involving the media, n on-governmental organizations, and the public at large in environmental enforcement (e.g., through information disclosure programmes) should also increase.

Research on PES programs in agro-ecosystems is recent and limited in developing countries. The authors use a multi-method, quasi-experimental impact evaluation approach to examine direct and indirect livelihood impacts of the Equitable Payments for Watershed Services (EPWS) program piloted in the Morogoro region in Tanzania. The evaluation is based on a survey of 116 program participants and 117 non-participants, 32 semi-structured interviews and 16 focus group discussions to complement the survey data. They find that, while the EPWS program incentives resulted in direct benefits, indirect benefits such as increased crop yields, higher land values, new employment opportunities, more knowledgeable farmers, improved leadership skills as well as increased trust, expanded internal and external networks and strengthened institutions were more important. The results clearly indicate the potential of PES schemes to generate win-win outcomes in agro-ecosystems, but they also call for attention to equity in the design of PES programs implemented on agro-ecosystems.

The environmental Kuznets curve (EKC) hypothesis holds that economic growth leads to increases in pollution in early stages of development, but is a significant driver of environmental improvements as income levels increase. Most empirical applications have focused on estimating a reduced form equation in which the measure of environmental degradation is posited as a non-linear function of income. In this paper we develop a structural production model based on an output distance function to investigate the EKC hypothesis for CO2 in a panel of industrialized countries from 1971 to 2000. This structural approach allows for the decomposition of the observed emission changes into the scale, composition, and productivity effects, thus providing additional insight into the interlinked processes of economic growth and environmental change. The findings from our preferred model indicate that for most countries, the CO2-saving productivity effect is not large enough to offset the CO2-producing scale effect.

We study the impact of a severe drought on children's educational outcomes in rural Maharashtra, a state in central India. Using pooled cross section data on children's test scores, we employ a difference-in-differences methodology to estimate the impact. We find that the drought caused a decline of 4.14 per cent in math scores and 2.67 per cent in reading scores of affected children. We also study heterogeneity in the impact by gender, age, parents' schooling, and household wealth, finding evidence in support of an income effect whereby households with limited means to smooth consumption disinvest in their children in response to the drought.

We employ a laboratory experiment to investigate the effects of environmental context and termination uncertainty on decisions in a dynamic game with a public bad. Every period the subjects decide on their own production level that generates private revenue and ‘emissions’. Emissions accumulate over time and act as a public bad. We characterize and use as benchmarks the Markov perfect equilibrium and social optimum and find that observed decisions are between the two predictions. We find no significant effect of termination uncertainty on decisions in any except the last few rounds where, in a fixed-end setting, subjects allocate their entire endowment to production. We find a strong effect of environmental context which partially substitutes for experience. The effect of experience is most pronounced in the fixed-end treatment where production allocations and the level of the public bad become lower after the restart.

This study predicts the impact of climate change on African agriculture. We use a generalized linear model (GLM) framework to estimate the relationship between the proportion of various Agro-Ecological Zones (AEZs) in a district and climate. Using three climate scenarios, we project how climate change will cause AEZs to shift, causing changes in acreage and net revenue per hectare of cropland. Our results predict that Africa will suffer heavy annual welfare losses by 2070–2100, ranging between US$14 billion and US$70 billion, depending on the climate scenario and cropland measure considered.

This paper estimates WTP for drinking water quality in Brazil by combining averting behavior with contingent valuation data. Using bivariate probit models, alternative structures allowing for heteroscedasticity between and within data sources are incorporated by taking advantage of the different information content that characterizes each data source. We look at two covariates not yet examined in the literature when combining stated and revealed preferred data to explain the variance in the models: income and the bid in the contingent valuation questionnaire. Tests for parameter equality across data sets are performed. The results suggest that the specification of heteroscedasticity has a significant impact in WTP estimates and is crucial to legitimate the combination of data sets from different origins. The significant differences found in WTP between the two sources are discussed.

This paper contains a critical assessment of the claim that NNP can be used for welfare comparisons. The analysis assumes that national accounts are comprehensive (in particular ‘greened’ by taking into account environmental amenities and natural resource depletion), but does not assume optimal resource allocation. The general conclusion is that greater NNP corresponds to welfare enhancement only if net investment flows are revalued. Real utility-NNP and real measurable NNP made comparable across time by means of a consumer price index allow for such revaluation, and thus indicate welfare improvement.

Many opportunities exist to take advantage of integrated surface water–groundwater management with consequent resource and investment savings. In inappropriate legal and administrative settings, groundwater becomes an open-access resource leading to excessive contemporary and inter-temporal externalities. Several policy instruments have been used to correct these externalities: limits in well spacing and capacities, pumping taxes and tradable pumping permits. Urban–agricultural competition for limited groundwater need not result in crises for either sector if these instruments are used to mediate the competition. In the case of non-renewable stocks of groundwater, rates of economic and demographic development should be planned in keeping with long-term criteria to avoid overly rapid exploitation of the resource, non-sustainable population levels and inappropriate investment in infrastructure. Island states and coastal areas have special problems related to saltwater intrusion and coastal subsidence that can be mitigated if not eliminated through the use of economic and physical measures. Five brief case studies illustrate these points.

We consider a two-player differential game of international emissions to represent the interactions between two groups of countries, namely, developed and developing countries. We adopt a broader-than-usual definition of environmental cost for developing countries to account for their evolving involvement in tackling environmental externalities. Cooperative and non-cooperative solutions are characterized and contrasted. We find that it may not be the best course of action to push developing countries to reduce their emissions in the short term, and that cooperation may not create enough dividend, also in the short term, to be implementable.

The authors develop a theoretical model that elucidates the relationship between the quality of governance, the composition of government spending and pollution as a by-product of the consumption process. In particular, they determine the impact of government spending that alleviates market failure such as subsidies to the poor which reduce credit market failure and environmental regulations to correct for pollution externality. It is found that a shift in government spending towards goods that alleviate market failure has countervailing effects – consumption pollution rises due to increases in income, but consumption pollution also falls due to increasing environmental regulations. Conditional on the government adopting a democratic regime, the effect through environmental regulations outweighs the effect through income leading to lower consumption pollution. The authors estimate an empirical model and find that the results support their theoretical predictions.

This paper evaluates the impact of climate change on agricultural productivity. Cross-sectional variation in climate among Brazilian municipalities is used to estimate an equation in which geographical attributes determine agricultural productivity. The Intergovernmental Panel on Climate Change (IPCC) predictions based on atmosphere–ocean, coupled with general circulation models (for 2030–2049), are used to simulate the impacts of climate change. Our estimates suggest that global warming under the current technological standards is expected to decrease the agricultural output per hectare in Brazil by 18 per cent, with the effects on municipalities ranging from−40 to+15 per cent.

The Mekong River Basin (MRB) is a trans-boundary river shared by six countries. The governance by the Mekong River Commission (MRC) of the Lower Mekong Basin (LMB) is weak. This study investigates the welfare effects in the year 2030 arising from strengthening the MRC's governance versus joint management of the entire MRB. Without joint management, strengthening the MRC's governance has a huge potential to achieve welfare gains and it requires that the interests of all stakeholders be equally balanced. A bargaining approach shows that the LMB has no incentive to negotiate with China and is better off strengthening the MRC's governance instead. If such strengthening could be realized, further welfare gains of joint management by a wider and stronger MRC, including China, would be very small.

Gasoline and diesel fuel are heavily taxed in many developed and some emerging and developing countries. Outside the United States and Europe, however, there has been little attempt to quantify the external costs of vehicle use, so policy makers lack guidance on whether prevailing tax rates are economically efficient. This paper develops a general approach for estimating motor vehicle externalities, and hence corrective taxes on gasoline and diesel, based on pooling local data with extrapolations from US evidence. The analysis is illustrated for the case of Chile, although it could be applied to other countries.

We explore poor farmers' incentives to adopt production systems that increase soil carbon sequestration, focusing on the impact of risk. A dynamic optimization model of conservation agriculture adoption is presented, where farmers optimize over expected utility of profits from agriculture and carbon sequestration. Adoption impacts on agricultural productivity are modeled as a combination of the technological effects of the new system, and productivity effects of changes in soil carbon on agricultural output. Comparative static results indicate increases in soil carbon sequestration price and the discount rate have unambiguous impacts on equilibrium soil carbon levels; the former leading to higher, and the latter to lower, carbon levels. Increases in the price of agricultural output and risk aversion have ambiguous impacts, depending on the relative strength of the productivity and technology effects. The paper concludes with a discussion of designing soil carbon payment mechanisms to benefit low income farmers.

Agricultural systems are complex and dynamic, being made up of inter-acting bio-physical and human sub-systems. Moreover, agricultural systems are re-markably diverse, both within geographic regions and across regions. Accordingly, this paper focuses on dynamics and heterogeneity in coupled, multi-disciplinary simulation models of agricultural systems. We begin with a discussion of the principal features of agricultural production systems. We then present an example of a ‘loosely coupled’ model, the type of model most researchers have used to represent agricultural systems. We discuss the loosely coupled model's features and limitations, and show how it can be modified to incorporate feedbacks among sub-models. Finally, we use a case study of a hillside production system in Ecuador to illustrate the importance of model coupling, dynamics and heterogeneity in the analysis of production systems. This example shows that feedbacks and threshold effects are most important at sites most vulnerable to tillage erosion.

Soil erosion and soil mining are important environmental problems in many developing countries and may represent a considerable drag on economic development. The cost of soil degradation depends, however, not only on the productivity effects it has on agricultural growth, but also on how the agricultural sectors are linked to the rest of the economy. This article describes an integrated economy–soil-productivity model for Ghana, and through several simulated scenarios we calculate the drag on the Ghanaian economy of soil mining and erosion, and illustrate the effects of different policies aiming at a reduction in these environmental problems.

The growing impact of regulations on the economy has led both Congress and the Administration to search for new ways of reforming the regulatory process. Many of these initiatives call for greater reliance on the use of economic analysis in the development and evaluation of regulations. One specific approach being advocated is benefit-cost analysis, an economic tool for comparing the desirable and undesirable impacts of proposed policies.

Continental-scale economic analysis suggests that changes in climate conditions are associated with lower agricultural net revenue in sub-Saharan Africa. Specific locations, however, may not reflect this overall trend due to variation in baseline climate, soils, and socioeconomic factors that are difficult to model at large scales. The economic effect of changes in climate conditions on agricultural revenue in particular places in sub-Saharan Africa remains largely unknown. To test this effect, we study an area of West Africa with high climate variation over a small geographic area. We find that higher temperatures and precipitation lower agricultural revenues in the more important rainy season but increase revenues in the less important cool, dry season.

This study examines conservation effects of wildlife trade using demand and supply data from caged-bird markets in Sumatra, Indonesia. When consumers have a strong preference for species rarity, trade could result in wildlife overexploitation and species extinction. Results from a choice experiment show that buyers of caged birds indeed value species rarity. However, not all rare species are equally preferred. Species that are frequently traded lose their rarity value, even if rare in the wild. Analysis of time-series data collected from traders over a period of 20 months between 2013 and 2015 reveals an inelastic supply function for rare species, with market arrivals being insensitive to price changes. This may be due to a declining stock of rare species in the wild. Bird trade together with habitat loss can lead to extinction of a number of rare species in Indonesia. Several policy approaches on regulating caged-bird markets are discussed.