Courtesy of teammate Jenna Morris for the collaboration:

Field and Field (2015) Chapter 4 – Markets, Externalities and Public Goods

“Pesticides, external costs and policy options for Thai Agriculture”

Topics: Economics Efficiency, Efficiency and Equity, Markets and Social Efficiency, External Costs and Benefits

Economic Concepts:

Equity — The allocation of income and wealth in society. In the real world, an outcome that benefits rich people at the expense of poor people is regarded as inequitable. So, an outcome efficient for a firm is not necessarily equitable.

Social Efficiency — The combined effect of costs and benefits experienced by a firm and the rest of society. The concept measures a condition’s impact on all. Otherwise, efficiency is based on a reference point.

Demand Curve — Shows the quantity of good buyers purchase at a variety of prices. It has a downward slope. The higher the price, the lower the quantity demanded. Underlying the demand curve are factors such as consumer tastes

and preferences and consumer income levels.

Supply Curve — Shows the quantity of good a firm is willing to make available at a variety of prices. It has an upward slope. The main factors affecting the height and shape of the supply curve are production costs. These, in turn, are related to

the prices of inputs used in production and the level of technology in the process.

Terms:

Market — A Common space (no longer only physical) where producers and consumers of goods and services convene in order to carry out exchanges

Willingness to Pay — The value of a material produced

Marginal Cost — The value of resources used to produce a material

External Costs — Do not typically factor into a firm’s decision and output rate while they are downstream costs suffered by society

Food Safety — Safe handling of material throughout the food production process

Organic — Food produced without the use of harmful pesticides

Article Summary:

Thailand experienced a significant increase in pesticide use from 1987-2010 as policy decisions promoted the chemical concoction as a public health and safety benefit. However, the authors introduced Pesticide Environmental Accounting (PEA) as a comprehensive tool examining pesticide use and its wide range of effects on bee colonies, biodiversity loss, human health, and pollution (Praneetvatakul et al 2013). From there, they recognized a need to educate farmers about the proper application of pesticides. Additionally, the article includes policy recommendations including a tax to purchase

pesticides and a mandate to substitute alternatives.

Assessment:

The article is a stimulating representation of concepts found in Chapter 4 as the authors applied social efficiency to logically call for educational outreach to farmers and policy preventing pesticide use. The article thoroughly conveyed

negative effects of the interplay between the marginal costs of production and willingness to pay. Since farmers are not valuing the resources used to produce food, they elect to buy pesticides low in cost due to unwillingness to pay for the

relatively expensive alternative. By using PEA to illustrate the environmental consequences of pesticide use, the author depicted the decision to use pesticides brings massive health consequence suffered by the planet and all its inhabitants. At the same time, farmers are only willing to pay a low production price as the health consequence does not impact profit.

While the authors recommended teaching farmers about the negative health consequences, in order to be impactful, the educators must draw intersection between the social value of food safety and a firm’s willingness to pay. The goal is to merge social efficiency with equity. Further, the authors acknowledged incentives structures are needed to supplement the market forces (Praneetvatakul et al 2013). Since social efficiency measures the true net costs and benefits experienced by all, the article is politically influential.

In the case of environmental quality, market institutions alone often don’t yield results that are socially efficient. Currently, the organic farmers who are willing to pay for a healthy, valuable product are supplying less compared to large agricultural firms who use pesticides. Since the consumer’s price for the organic good is relatively high, the consumer demand is low. As a result, organic farmers who are willing to pay have trouble engaging in competition. The authors explained a strong approach to reset the market is to regulate pesticide use, through taxation or substitution, in order to protect public health as a social value.

Implications:

Thailand’s agricultural system is heavily dependent on exports. In turn, the farmers are driven by politics occurring in other nations. As long as demand for products does not change, the varying degree of farmer respect for social efficiency is going to persist. Therefore, we need to think larger than the sphere of Thai politics and henceforth look into the potential for global politics to impact demand.

We can use information from the study to look deeper into certain referenced topics. For example, the information from Table 1 investigates the interplay between farm worker health, consumer health, and the environment. Thai farm workers, through education, can become more informed and protected users of pesticides. Thailand can run models to see if the total willingness to pay in export markets is actually higher than its current demand curve.

Class Questions:

1) What additional data would be useful in better understanding pesticide use in Thailand? Is there a tool which may be useful in addition to PEA?

2) Considering the depiction of Thailand’s pesticide problem, do you recommend outreach to farmers, educating consumers, command-and-control policy, taxation, or a different strategy?

4) Consider the definition of public goods introduced in the chapter, is a bus a public good? Is an automatic teller machine (ATM)? Is a public park? Is a library? (Fields and Fields 2017, 78).

5) Consider the example of the three homeowners around the lake (the ones depicted in Table 4.2). Suppose the lake was cleaned up to the efficient level of 2 ppm and that the total costs of the cleanup were shared equally among the homeowners (sticks to integer values here). Will all three homeowners be better off? What problems does this bring up about sharing the costs of public goods? (Fields and Fields 2017, 78).

References:

Praneetvatakul, Suwanna, et al. “Pesticides, External Costs and Policy Options for Thai Agriculture.” Environmental Science and Policy, vol. 27, 2013.