KULUNDA How to prevent the next "Global Dust Bowl"? –

1. KULUNDA How to prevent the next "Global Dust Bowl"? – Ecological and Economic Strategies for Sustainable Land Management in the Russian Steppes: A Potential Solution to Climate Change

2. Norbert Hirschauer Barnaul Lecture „Policy Analysis“ March 18, 2013, Barnaul MARTIN-LUTHER-UNIVERSITÄT HALLE-WITTENBERG, Germany Agribusiness Management An analytical approach to the benefits and pitfalls of policy interventions What policy makers should bear in mind when designing agricultural, environmental and rural development policies

3. High financialtransferstoagriculturalsector Producer supportequivalents in 2010 (OECD) • Vestedinterestof a particulargroup (farmers)? • Orsociallydesiredoutcome (netsocialbenefit)?

4. Lecture Outline • Problems tobeaddressedandobjectivestobepursuedbypolicymakers • Normative rationale ofpolicymaking • Potential policyinterventions • Policyimpactanalysis • Smart regulation • Conclusion

5. 1. Problems tobeaddressedbypolicymakers

6. Externalityproblem: a stylizedexample Farmer Fisher

7. Externalityproblem: a stylizedexample pW =25 €/dt pF = 150 €/dt qN = 1 €/kg a = 45 b = 0,4 c = -0,001 d = 60 e = -0,02 Farmer Fisher

8. Externalityproblem: a stylizedexample Optimum farmer xN = 180 kg/ha BW = 9 675 € Fisher xN = 0 kg/ha  BF = 9 000 € xN = 180 kg/ha  BF = 6 300 € Farmer Fisher

9. Externalityproblem: a stylizedexample Farmer: -450(nopareto-improvement) Fisher:+900 +450(Kaldor-Hicks-improvement) = collective rational solution

10. Externalityproblem: a stylizedexample 2 -450 +900 1 Side payments Binding contracts = transformationof non-cooperativegamesintocooperativegames Bewareoftransactioncosts! Wind erosion+sandstorms; climate change+CO2 sinks Farmer = Farmer Fisher = Rest ofsociety

11. 2. Normative rationale ofpublicpolicymaking Social benefit > Social costs: Every policy intervention and act of legislation should be based on the assumption that it produces social progress and increases societal welfare compared to a situation without that intervention. Popular instances of such interventions include compulsory schooling, the imposition of high tobacco taxes to encourage people to make a “healthy” non-smoking choice, food safety and environmental legislation, etc. There are other collective choice questions such as mandatory health insurance or the provision of free education where there is less consensus and where different countries have opted for different degrees and types of policy intervention.  While it is obvious that governments need to devise public policies, it remains a legitimate question of public debate in democracies to which extent, in which contexts, and how governments should provide, distribute, and regulate.

12. 3. Potential policymeasures • Subsidies(redistributionofincome, constantsumgames) • Human capacitybuilding + eliminationofmarketdeficiencies • Buildinggoodinstitutions(e.g. reliable legal system) • Change of relative prices (Coase, Pigou) • Mandatorylaw • Promotion ofcorporatesocialresponsibility

13. Howpolicymeasureswork (1) (Agriculturalsector) 1. Subsidies(constantsumgames) Note: egalitarianredistributionofincome via transferpaymentsincreasessocialwelfare due todecreasing marginal utilityofincome (Other sectors, taxpayers)

14. Howpolicymeasureswork (2, 3) (Agriculturalsector) 2. Human capacitybuilding + eliminationofmarketdeficiencies sustainable + more profitable farmingpractice 3. Buildinggoodinstitutions (reliable legal system, tortlaw) (Other sectors, taxpayers)

15. Howpolicymeasureswork (4) (Agriculturalsector) 4. Change of relative prices („getincentivesright“) - novelpropertyrights (Coase) - Pigouviantaxes - demandbythestate (forecosystemservices) (Other sectors, taxpayers)

16. Howpolicymeasureswork (5) (Agriculturalsector) :( 5. Command+control (Other sectors, taxpayers)

17. Howpolicymeasureswork (6) (Agriculturalsector) 6. Promotion ofcorporatesocialresponsibility :) (Other sectors, taxpayers)

18. 4. Policyimpactanalysis (Agriculturalsector) :) Successfulpolicy ?(=mitigationofmarketfailure) :( Governmentfailure ? (Other sectors, taxpayers)

19. Comprehensivestepsofpolicyimpactanalysis Identificationofexternalities Boundedrationality+ multiple goals

20. 5. Smart Regulation Smart regulationrequiresreconstructingunderstandingtoavoidcrowding out anddefiance/reactance

21.  6. Conclusion (methodsandfactualproblems? ) • 1. Identifytheproblemthatistobemitigated Externalities ?- sandstorms- CO2 sink Lack ofcapital ? Lackinginstitutionaltrust (legal system, propertyrights) ? Insufficienteconomicperformance? Deficientcapitalmarket ? ??? - Wrongprices- Lackingknowledge? - Lacking CSR?- …? - Lackingknowledge?- …? • 2. Identify a priori promising policyinterventionsandtheircosts • 3. Carry out a policyimpactanalysis- estimatetheexpectedsocialnetbenefits (costbenefitanalysis)- identify smart regulatoryapproaches (costeffectivenessanalysis)

22. Sandstorms and CO2 sinksrevisited Whichmeasuregeneratewhichsocialnetbenefitand whichplayersprofitfrom/payforthechange ? (Agriculturalsector) Ourstartingpoint: farmlevelcostsfortheprovisionofecosystemservices ? Which (side)paymentsareneededforcompensation? (Other sectors, taxpayers)

23. Norbert Hirschauer Barnaul Lecture „Policy Analysis“ March 18, 2013, Barnaul MARTIN-LUTHER-UNIVERSITÄT HALLE-WITTENBERG, Germany Agribusiness Management An analytical approach to the benefits and pitfalls of policy interventions What policy makers should bear in mind when designing agricultural, environmental and rural development policies Thank you for your attention.

24. Performance gapbetween German farms Remember: Social benefit > Social costs: Every policy intervention and act of legislation should be based on the assumption that it produces social progress and increases social welfare compared to a situation without that intervention.