Saturday, August 19, 2017

Unintended Consequences of Environmental Regs

by Levi Russell

Over at the Texas Ag Law Blog, Tiffany Lashmet provides a discussion of the history and current state of the Waters of the United States (WOTUS) rule in relation to ag. Her post is very informative and I suggest you check it out. Here's a slice:
Rescinding a rule already promulgated is not as simple as it may sound.  The EPA has published a new proposed rule in the Federal Register, which essentially seeks to codify the rule as it was prior to the 2015 EPA rule being passed (and, due to the 6th Circuit stay, the approach currently in place across the US).  Specifically, the proposed rule would rescind the 2015 approach and codify an approach consistent with the Rapanos Supreme Court decision, applicable case law, and other longstanding agency practices. 
Now, notice and comment rulemaking will take place, which will allow the public to offer input on the new proposed rule.  This period is open through August 28, 2017.  After that, the EPA plans to conduct a “substantive re-evaluation” of the definition of WOTUS and conduct notice and will likely propose a new rule after property notice and comment rulemaking occurs. [Read new proposed rule and comment here.] 
Meanwhile, the 2015 rule is not in force anywhere in the United States, as the 6th Circuit stay remains in place.  Thus, currently, the definition of WOTUS is governed by the pre-2015 rule that got us the complex decision in the Rapanos case.  Unfortunately, until a new rule is promulgated, landowners are left with trying to interpret the Rapanos decision in order to know whether federal permits are required on their land.
Over the past couple of years I've been thinking about the costs associated with regulation like this. Certainly the intent of environmental regulation of agriculture is to internalize the external costs associated with the production of agricultural goods.

For example, we value the food and fiber produced by modern agricultural practices, but their production entails such things as water and air pollution, soil erosion, and other economic "bads." Environmental regulation is intended to curtail the production of those bads by ensuring that producers bear the cost of producing them. However, no policy is perfect and it is reasonable to think that some of the costs of regulation might be borne by consumers rather than producers.

To examine that question, I recently finished up a working paper examining the relationship between EPA regulation and relative food cost. You can read the whole thing here (and I'd appreciate any feedback), and here's the abstract:
Cost-benefit analysis of agri-environmental regulation is limited in the sense that it only examines the effects a single regulation will have on the public and polluters. Further, important mechanisms through which the public might bear part of the cost of regulation are not examined. This paper uses new data that allows for examination of regulation by a specific government agency on a specific industry to determine whether and to what extent relative food costs are affected by regulation of agriculture by the Environmental Protection Agency (EPA). The index allows for an examination of the overall effect of regulation, which is an important addition to the existing literature. Findings indicate that the costs of EPA regulation have not been borne solely by producers and that relative food costs would be lower now if EPA regulation had not increased over time.

Sunday, August 13, 2017

Agricultural Econ Potpourri

by Levi Russell

As we move into debate over the next Farm Bill, here is a great overview of the state of the discussion.

If you're curious about China's new policy on beef imports, check out this blog post.

Farm fixed expenses are finally moving down.

As fixed expenses are moving down, land values are up yet again this year.

Friday, August 4, 2017

Agreeing and Disagreeing with Kling on Method

by Levi Russell
I recently ran across a couple of interesting posts on Arnold Kling's blog. One post I agree with wholeheartedly. In the other, I think Kling misses an important bit of information.

Post #1
Consider two rationales for building models:

(a) Build a model in order to clarify the signal by filtering out the noise in a complex causal system. This is a knowledge-seeking endeavor.

(b) Build a model in order to be able to say, “In setting X, I can show how you get outcome Y.” This is just playing a game.

...

Some remarks:
1. I am pretty sure that economists are unique in their attachment to model-building as a game. My sense is that in other disciplines, including those that study human behavior and those that use non-mathematical models, researchers are more likely to be building models in order to try to separate the signal from the noise in a complex causal system.
 As always, I recommend reading the rest of the post.

Post #2
From a commenter:
I’d ask why self-interest needs to be manifested in overtly economic terms.
If you define self-interest broadly enough, then the statement “people pursue their self-interest” becomes irrefutable. And if you cannot refute it, then it is just an empty tautology.
I would much prefer to work with refutable claims than with empty tautologies.
So I continue to treat public choice theory as saying that people pursue economic gain in the political process. With that definition, public choice theory is often wrong, but at least it can be usefully right.
Here's my comment on the post:

The important distinction is between a tautology and an empty tautology.
Much of geometry is tautologous. Does that mean geometry is empty of insight? Certainly not.
It may be tautologous to say that “people prefer their own self interest” where “their own self interest” is whatever they subjectively desire, but it is certainly useful. Focusing on the subjectivity of costs and benefits dramatically increases economists’ ability to understand human behavior. Defining self interest narrowly, such that only objective costs and benefits are considered relevant is actually a step backward, even if it is more consistent with, say, the methods of physicists.