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Agriculture and the Environment

Paper Session

Saturday, Jan. 3, 2026 10:15 AM - 12:15 PM (EST)

Philadelphia Marriott Downtown, Grand Ballroom Salon J
Hosted By: Association of Environmental and Resource Economists
  • Chair: Philip Mulder, University of Wisconsin-Madison

The Economic and Distributional Impacts of Environmental Policies: Winners and Losers in Brazil’s Priority Municipalities

Sarah Elven
,
London School of Economics

Abstract

This paper explores the economic consequences of deforestation policies on households, with a focus on distributional outcomes. In the context of the Priority Municipalities policy in Brazil, it asks whether increased regulation and enforcement, and the resulting reduction in deforestation, affected employment and income of households situated in targeted areas. The identification strategy exploits the assignment mechanism for priority status to first estimate the average economic effects of the policy using a fuzzy regression discontinuity design. It then uses a "changes-in-changes" analysis from Athey and Imbens (2006) to examine effects at different parts of the distribution. In line with previous work on this topic, which considers effects at the municipality level, the study finds no evidence of economic impacts on average for municipalities in the sample. However, the changes-in-changes analysis suggests heterogeneous impacts at different parts of the income distribution, especially for those employed in agriculture. In particular, it appears that the lack of impact on average obscures regressive effects for this sector, perhaps due to a substitution from labor-intensive to more capital-intensive agricultural production.

The Moral Hazard—Environmental Externalities Dilemma in Subsidized Crop Insurance: Evidence from Water Quality in China

Yanghan Lin
,
Renmin University of China
Daye Zhai
,
Duke University
Ziwei Ye
,
Renmin University of China

Abstract

Whether crop insurance exacerbates environmental pollution remains the subject of long-standing debate. In this study, we exploit China’s recent rollout of full cost insurance (FCI) and planting revenue insurance (PRI) for the three major staple crops—rice, maize, and wheat—as a quasi-natural experiment to examine how a substantial increase in coverage levels affects surface-water quality. We provide mixed evidence. On the positive side, following the policy implementation, average concentrations of total nitrogen (TN) and total phosphorus (TP) in surface waters around pilot counties significantly declined. In regions with higher climate risk and higher historical insurance payout rates, these reductions are observed more rapidly. However, water quality did not improve everywhere: different insurance designs yield sharply different environmental impacts. By indemnifying pre-specified production costs, FCI reduces water pollution by weakening farmers’ incentives to use chemical inputs, albeit at the cost of modest yield reductions. By compensating on the basis of regional average yields and market prices, PRI mitigates moral hazard by aligning production incentives with income stabilization, but it encourages production intensification—greater fertilizer application and higher yields—thereby increasing nutrient-runoff pressures. Future policy design should explicitly weigh the tension between moral hazard and environmental sustainability.

Discussant(s)
Prakash Mishra
,
University of Pennsylvania
Philip Mulder
,
University of Wisconsin-Madison
JEL Classifications
  • Q1 - Agriculture
  • Q5 - Environmental Economics