SEA Working Paper 98/03 - Abstract
On the use of individual-farm models for analysis of resource conservation problems
David J. Pannell
Agricultural and Resource Economics, The University of W.A., Nedlands, 6907
Abstract
Resource conservation issues are widely held to be larger in scope than individual farms. Partly as a consequence of this, there has been an increasing emphasis on catchments and groups of farmers in agricultural extension. For these reasons, it has mistakenly been concluded by some that economic decision models at the individual-farm level have little or no contribution to make to evaluation of resource conservation issues. There are several reasons why this is not true. (a) Notwithstanding the reality of catchment processes (especially water-related) beyond farm boundaries, and the undoubted value of group-based extension, final decision making still rests with individual farmers. For resource conservation practices, as for others, private financial considerations are key drivers of management decisions. Individual farm models provide useful information about economic incentives facing farmers. (b) Even where a model is to provide direct support to decision makers who are concerned with aggregate rather than individual effects, individual farm models can contribute in a number of ways. These include providing information about the costs of reducing land degradation, and the likely responses of farmers to potential policies. (c) For several major land conservation issues, the central concerns are not with spillover effects, but with poor decision making due to poor information. In these cases, individual farm models are perfectly appropriate. (d) Even where externalities exist, they do not necessarily lead to market failure. There are reasons why the optimal farming strategy from a private farmer’s perspective may still correspond to the socially optimal strategy, and these reasons are likely to apply in practice, at least in some cases. The various potential uses and contibutions of individual farm models are outlined and illustrated with examples. However, it is important to recognise the broader context within which individual farms sit and that this context places limitations on the generality of results from individual-farm models.
Citation: Pannell, D.J. (1998). On the use of individual-farm models for analysis of resource conservation problems, SEA Working Paper 98/03, Agricultural and Resource Economics, University of Western Australia, http://www.general.uwa.edu.au/u/dpannell/dpap9809f.htm
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