Behavioral responses and policy evaluation: Revisiting water and fuel policies

Shanxia Sun, Purdue University

Abstract

In my dissertation, I examine how policies regulating agricultural production and clean technology impact the environment. I focus on policies affecting water depletion, water pollution, and fuel consumption. I assess their cost-effectiveness by modeling and quantifying the behavioral responses of farmers and households. My first essay focuses on decreasing groundwater depletion through increasing irrigation efficiency in Mexico. I quantify the impacts of different sources of inefficiency on groundwater extraction, and I evaluate the effectiveness of alternative policies that aim to reduce the over-extraction of groundwater. I find that mechanisms of electricity cost-sharing implemented in many wells have a sizable impact on the inefficiency of irrigation applications; thus, policies eliminating electricity cost-sharing mechanisms have a substantial effect on decreasing groundwater depletion. In contrast, price-based policies are less effective, and policies targeting well-sharing do not have significant effect on reducing irrigation application and groundwater depletion. In my second essay, I assess policies which attempt to reduce water pollution by reducing fertilizer application. Input- and output-based economic policies designed to reduce water pollution from fertilizer runoff by adjusting management practices are theoretically justified and well-understood. Yet, in practice, adjustment in fertilizer application or land allocation may be sluggish. I incorporate time cost as a new dimension in the assessment of these policies and simultaneously quantify the magnitude of the policy effectiveness and the speed at which the policies take effect. I find that while both input- and output-based policies are able to induce a significant reduction in fertilizer application, input-based policies are more cost-effective than their output-based counterparts. Further, input- and output-based policies yield adjustment in fertilizer application at the same speed, and most of the adjustment takes place in the short-term. Due to the rapid adjustment in land allocation between corn and soybeans, the long-term effects of the policies can also be rapidly achieved. Though the time cost does not constitute a major concern in my research area, the time dimension may be important in research areas in which there are different crops that may not be easily substituted between. In my third essay, I explore household adoption of gasoline-electric hybrid vehicles and the impact of hybrid ownership on annual miles traveled in order to understand how hybrid ownership impacts fuel savings. I focus on issues of identification in light of several behavioral factors that are believed to influence both hybrid adoption and miles traveled. I measure two types of rebound effects associated with hybrid adoption. The first one is a traditional rebound effect in which a hybrid owner drives more due to the lower travel cost from higher fuel efficiency; the second one is a social status driven rebound effect in which a hybrid owner drives more to signal his environmental friendliness through driving a hybrid. I find a statistically significant traditional rebound effect on miles traveled. However, this rebound effect is only 3% of the average annual miles traveled and only slightly offsets the fuel savings from the higher fuel efficiency of the hybrid. I do not find evidence of a status-driven rebound effect. I estimate that hybrid adoption induces substantial fuel savings that amount to about half of the average fuel consumption of regular vehicles.

Degree

Ph.D.

Advisors

Delgado, Purdue University.

Subject Area

Environmental economics|Agricultural economics|Natural Resource Management|Water Resources Management

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