This paper estimates the cost of a policy to restrict water trades to mining firms in northern Chile in order to protect riparian ecosystems and indigenous agriculture. In response to the policy, mining firms have developed high-cost desalination and pumping facilities to secure adequate water supplies. We develop a methodology and estimate the cost of market transactions that fail to occur due to the policy. Lost trade surplus is estimated at US$52 million per year. Without trade restrictions, around 86 per cent of the remaining agricultural water in the region would be transferred to mining.

Deforestation is one of the major sources of carbon emissions, but the Kyoto Protocol presently excludes avoiding these emissions to fulfill stabilization targets. Since the need for policy incentives for the reduction of emissions from deforestation and degradation (REDD) was officially recognized in 2007, the focus of this debate has shifted to issues of implementation. Concerns about the effects that the availability of low-cost REDD credits might have on energy investments, and the development of clean technology constitute the main motivation of this paper. We analyze the production side of the problem with the help of a real options model with an option to invest in less carbon-intensive energy technology and an option to purchase credits on REDD, which will (or will not) be exercised in the future. Unresolved questions can thus still be addressed later, while producers and investors hold REDD options to maintain flexibility for later decisions.

‘Agroindustrialization’ comprises three related sets of changes: 1 growth of commercial, off-farm agro-processing, distribution, and input provision activities; 2 institutional and organizational change in the relations between farms and firms both upstream and downstream, such as a marked increased in vertical integration and contract-based procurement; and 3 related changes in product composition, technologies, and sectoral and market structure (Reardon and Barrett, 2000). The actual and potential environmental effect of these changes have been sparsely documented to date. There does not seem to have been any attempt at a reasonably general analysis of the pathways by which such effects might occur or of the instruments governments might have at their disposal to influence these pathways. This essay is meant to fill the latter gap while the articles and policy forum that follow provide more detailed findings and perspectives on constituent issues.

This paper examines efficiency and equity in groundwater markets with special attention to output sharing contracts and to the bargaining relationships between sellers and buyers, using household level data from Madhya Pradesh, India. Regression results find no significant inefficiency on farms managed by output sharing buyers, presumably because optimal input intensities are achieved through effective monitoring and contract adherence mechanisms embedded in long-term and intensive personal relationships between sellers and buyers. As for equity, the finding is that, while output sharing buyers pay higher water prices, the rate of premiums is merely 5 percentage points higher than the informal interest rate that they would have had to carry under other types of groundwater contracts. The results also show that buyers who have access to alternative water sellers pay lower water prices. These findings indicate that if the imperfection of credit and contingent markets in rural areas are taken into account, informal groundwater markets work fairly well in agrarian communities if monitoring and contract adherence mechanisms are embedded and a sufficient number of potential sellers are available.

We combined field experiment and household survey data to investigate whether working in a risky occupation such as fishing makes fishers less risk averse than people in other occupations. The unique characteristic of Vietnam's fisheries enables us to solve the endogeneity problem of occupational choice usually found in this kind of study. We used prospect theory as the main analytical framework and developed a practical procedure to simultaneously estimate the parameters of the utility function under prospect theory. The key finding is that working in a fishery makes economic agents less risk averse than others.

As an international metropolitan area undergoing rapid development, Beijing is facing a sharp rise in the volume of motor vehicles and mobility, which has become the major contributor to the air pollution in this city. This is evident in the recent ranking of Beijing as the most congested as well as the most polluted city in the world by the Millennium Cities Database. Local government has adopted a battery of policies to reduce these problems. In this study, we investigate the impact of increasing the fuel tax on travel mode choice based on a large sample of travel survey data. We estimate that if the price of gasoline increased to a moderate level, 11.53 RMB/liter, the total car volume on the road would be reduced by 7 per cent, which corresponds to a reduction in CO2 emissions of 786,002.4 tons, or about 8 per cent of vehicular emissions from private cars and company-owned cars in Beijing.

The authors study the impact of natural resource degradation on income diversification in Beninese fishing communities. Using survey data and econometric analysis, they show that fishermen are more likely to diversify their income when the degradation of the fish stock is more severe. However, the level of income diversification that they find is surprisingly low and far from sufficient to relieve the stress on the lakes. The latter relates to low levels of formal education among fishermen and the unregulated use of highly productive, but damaging, fishing gear. These two factors result in a high return to fishing relative to non-fishing activities, even amid degradation.

Coal has fueled China's rapid growth in recent decades, but it also severely pollutes the air and causes many health issues. The magnitude of the health damage caused by air pollution depends on the location of emission sources. In this paper, we look into the spatial distribution of coal-fired power plants, which are the major emission sources in China, and investigate the determining factors behind the distribution. We find that the driving factors are economic development and expansion of electricity grid coverage; the latter factor plays a key role in provinces that are less developed but have abundant coal resources. This suggests a way to reduce health damages caused by air pollution without harming the economy: attracting coal-fired plants to less populated areas by developing trans-province electricity trade and grid coverage.

The neoclassical economic growth model and its extensions in the fields of environmental economics and endogenous growth theory typically represent welfare as a single argument function of consumption when the models are analytically solved. This simplified welfare specification is narrower than those described in the quality-of-life literature and emphasized by proponents of sustainable development. The purpose of this paper is to analytically solve for the properties of a growth model based on a broader quality-of-life measure. The welfare measure includes two arguments, consumption and the stock of nature capital. This formulation enables an analysis of the consequences of the dynamic tension between conventionally defined economic growth and nature capital preservation. We find that a static model without technical progress yields diverse steady states, stability properties, and comparative statics, while a model with exogenous technical progress exhibits unusual comparative dynamics and balanced growth paths. These unusual outcomes have a number of policy-relevant implications for sustainable development.

Village economies and peasant households represent the main link between the economy and the environment in sub-Saharan Africa. The links from the macro level and down to the household level and further to the natural resource base are complex. It may therefore be difficult to predict the impact of macro policies and external shocks on the environment. This paper presents a typology of village economies and village economy-wide models. The framework is applied to a special case where a model is proposed and estimated to examine the impacts of external shocks, including structural adjustment policies, on cash-crop production and chitemene (shifting cultivation) in a remote Zambian village characterized by a missing (or negligible) labour market, input supply constraints, and credit rationing. Our findings indicate that structural adjustment policies, by decreasing the profitability of maize production, may encourage households to increase their chitemene production, resulting in more rapid deforestation.

To foster the adoption of sustainable intensification practices amongst Ghana's farmers, they are widely promoted through training sessions provided by development organizations, companies, and the public extension service. We investigate whether these training sessions are effective and find that they are effective only for the diffusion of organic fertilizers but not for mulching. We suggest that this comes from the complexity of the innovations. Mulching is one of the simplest sustainable intensification technologies. It diffuses easily through peer learning and, after an initial training delivered to a critical mass of farmers, does not require training anymore. The use of organic fertilizers, in contrast, requires more specific knowledge and adaptation, which limits the effectiveness of peer learning and increases the effectiveness of training. This suggests that to achieve a widespread diffusion of sustainable intensification amongst Ghana's farmers, training sessions should focus on those practices that are complex and thus difficult to learn from peers.

This paper examines the adverse effect of natural resources scarcity on children's schooling and the possible gender bias of resource collection work against girls' schooling. It uses cross-sectional data on 316 children aged 7–18 years collected from 120 rural households in Tigray, northern Ethiopia. The two-stage conditional maximum likelihood estimation technique is employed to take care of endogeneity between schooling and collection intensity decisions. The results revealed that a 50 per cent increase in collection intensity reduces the likelihood of child schooling by approximately 11 per cent. However, we find no evidence of gender bias against girls' schooling.

This special issue focuses on the poor and their role in forest degradation. The idea that the poor are both agents of forest degradation and victims of forest loss is not new. Neither is the observation that unsustainable rates of forest use by smallholder farmers arises as a result of a complex interplay of incentives, constraints, and institutional forces. For researchers and policy makers concerned with natural resource use in low-income settings, theory is often useful, but rarely adequate to explain behavioural patterns. Unambiguous theoretical findings tend to flow only from substantial sets of simplifying assumptions, and such assumptions, measured against the observed facts of smallholder agriculture, seem largely untenable. Unfortunately much empirical research on the topic suffers from an opposite problem. In settings where, at any point in time, everything matters and nothing is held constant, econometric findings are frequently weak. The combination of heterogeneity of circumstance, homogeneity of market signals, and limitations on smallholder response generally overwhelms the statistical power of small data sets, often collected with different purposes in mind.

This paper investigates the potential for economic policies to influence environmental outcomes in low-income agriculture. The analysis focuses on how changes in agricultural prices influence land-use decisions and environmental indicators. Tree-planting decisions of low-income farmers in the Philippines are examined using a stochastic dynamic household model. Empirical analysis and dynamic simulations demonstrate that changes in relative prices and relative price risks are important determinants of tree-planting decisions. Results show that small holders are sensitive to risks associated with tree crops, but that price risk is not an insurmountable barrier to tree crop adoption. The relationship between cropping patterns and two environmental indicators - erosion and species diversity - are discussed.

This paper argues that the use of coal can be reconciled with the environment. In the empirical work, three environmental pollutants are considered, using two alternative methods with two sets of Chinese data. CO2 emissions could not be studied because of data limitations. The hypothesis that the use of coal can be reconciled with the environment through declined emission intensity is confirmed by the empirical tests. The decreases in emission intensity are driven by the application of clean coal technologies, which can be encouraged by appropriate regulations and incentives and have both environmental and economic benefits. Therefore it is critical that appropriate legal and fiscal regimes be formulated and that the development and utilization of high-efficiency and clean coal technologies be promoted. The paper also suggests that the use of coal could continue to be reconciled with concern for the environment, even while considering CO2 emissions.

Our study examines the effect of water utilization together with the effect of water quality on economic growth across countries. We constructed a panel of 177 countries covering the period of 1960–2009. We analyse two dependent variables, gross domestic product per capita and the average of five years of growth. The analysis is conducted using a fixed effects model and fixed effects with instrumental variables. We find that although water utilization affects growth, water quality also proves to be highly significant and affects growth in both the short and long run to a greater degree than water quantity.

We estimate the implicit prices of the crime rate and airborne pollution in Chile, using spatially compensating price differentials in the housing and labor markets. We evaluate empirically the impact of different estimation strategies for the wage and rent equations, on the economic value of these two amenities. The results show that increments in the crime rate or in air pollution have a negative impact on welfare and that the estimated welfare measures and their variances are sensitive to selection bias, endogenous amenities and clustering effects. In contrast, the welfare measures do not seem to be very sensitive to the simultaneity bias.

A decade has now passed since Daly made a plea for an environmental macroeconomics. Despite an expanding literature on ‘green’ national accounting and the efforts of ecological economists to measure the sustainable net benefits of a growing macroeconomy, it is only recently that Daly's plea has been adequately answered. This has been achieved with the incorporation by Heyes of an ‘environmental equilibrium’ or EE curve into the familiar IS–LM model. However, the IS–LM–EE model proposed by Heyes is incomplete. By extending Heyes' model to include the role of technological progress and the sustainable net benefits of economic activity, this paper shows that conclusions regarding the desirability of expansionary fiscal and monetary policies alter quite radically. Moreover, it sends out a clear message that environmental concerns should be incorporated into macroeconomic models. They should not be solely confined to microeconomics.

Accelerating economic growth and social development is necessary to reduce the vulnerability and enhance the adaptive capacity of sub-Saharan Africa to cope with the consequences of predicted unfavorable future climate. This requires major investments and policy reforms to induce a needed radical transformation of the way development is currently pursued to a more climate-sensitive path of low carbon growth. Key gaps in the current knowledge base that call for major investments and urgent attention include the ability to forecast more robust local future climate and to account for the uncertainties associated with climate risks for ecosystems' functions and probable nonconvexities in future impacts to project more plausible scenarios for future development in sub-Saharan Africa and provide better information on the costs and benefits of potential actions to avert the negative consequences of climate change.

On 2 April 2013 a major flood struck the City of La Plata, Argentina, killing 89 people and displacing thousands of others. That event, the worst flood the city has suffered in the past 100 years, prompted plans for a new hydraulic infrastructure. Although such an investment is necessary, little is known about its benefits. This paper intends to shed some light on this issue by estimating the willingness to pay to avoid the risk of experiencing a flooding event. For this purpose, we have taken thousands of real estate prices in the La Plata Metropolitan Area and combined them with a high-resolution flood risks map to estimate spatial hedonic price models. The results show significant price discounting for properties in flood-prone areas.