Local and Global Welfare When Regulating Organic Products: Should Local Regulation Target Production or Consumption?
2.1. Local Economy
2.1.1. The Conventional and/or Organic Supply Functions by Local Producers
2.1.2. The Form of Damages Incurred by Local Community
2.1.3. The Demand Functions by Local Consumers
2.2. Nonlocal Participants
2.2.1. The Conventional Supply Function by Nonlocal Producers
2.2.2. Absence of Nonlocal Consumers and Absence of Damage for the Nonlocal Community
2.3. Mechanisms of Regulations
3. Market Equilibria under Different Regulatory Objectives
4. Welfare Analysis of Regulations When the Damage is Incurred by Residents Close to the Production Site
4.1. The Local Regulation
4.2. The Global Regulation
5. Welfare Analysis of Regulations When the Damage is Incurred by Consumers
5.1. The Local Regulation
5.2. The Global Regulation
- In our present paper, we did not consider any demand for a country with nonlocal producers, which is an extreme assumption that corresponds to situations where there is no effective local demand, but this configuration could be introduced. In this new context, the results would be close to the results presented in this paper, even if some values of standards or frontiers in figures would change.
- In the paper, we oversimplify the regulation choice imposing 100% organic production to all producers, following the Sikkim example. However, the model can be extended less drastic objectives like a high level of organic production, representing 30%, 50%, or 60% of the production respectively, rather than the entire production. Moreover, the private incentives to adopt organic products without mandatory regulation but with clear organic labels could also be studied.
- The model focused on a single type of product with a partial equilibrium analysis, but it could be extended to several products with a general equilibrium model. This model could be also extended to several products and countries with a general equilibrium model. When several products entail a different level of per-unit damages, a new coordinate symbol E(d) representing the average damage across products may replace the original coordinate symbol d representing the damage on the longitudinal axis of the Figure 1, Figure 2, Figure 3 and Figure 4.
- The analysis here should be expanded by detailing the reaction of foreign producers to offering innovative/organic products.
- Throughout the model, we assumed that external damage does not influence market demand. However, demand and external damage can interact when consumers are aware of the damage, for example, via information . Again, the results would be close to the results presented in this paper but with multiple cases, and some values of standards and frontiers in figures would change. Our results are robust if we allow for this interaction between the damage and the demand.
- In the model, we abstracted from the entry/exit of both local and nonlocal producers. When a new regulation is studied, the entry or exit of new producers could be studied. The imposition of an organic regulation requires many new investments, such as mechanical robots for weeding. These investments can be seen as sunk costs not depending on the level of production. In this case, for an organic producer with an output the cost function is with F being the sunk cost incurred for eliminating the damage. The higher F is, the lower the number of producers able to enter the organic segment is.
- This model does not take the heterogeneous production purposes of different regions into consideration. For example, the goals of organic regulation in the US and EU vary dramatically; the EU mainly intends to solve environmental problems, while the US aims to satisfy consumer preferences rather than sustainable agriculture . As differences in explicit goals might bring about various degrees of influence on risk, the results based on the model would have different applicability in various regions.
- The theoretical framework can be applied to one specific food like tomatoes or apples, with empirical data to provide a quantitative cost–benefit analysis. It is possible to use an approach based on a calibrated model combining elasticities of demand obtained from times-series econometrics and average willingness-to-pay obtained from the experiment for determining monetary damage d appearing in Equations (A15) to (A26) in Appendixes . For a status quo situation preceding a reinforcement of the regulation, parameters of Equation (2) can be calibrated in such a way as to replicate market prices and quantities for a given year, with the observed quantity sold over a period, the average price observed over the period, and the direct price elasticity obtained from econometric estimates . When calibrated to empirically measure exchanges on one market for a given product, the partial equilibrium approach provides a welfare analysis for choosing regulatory instruments on a product-by-product basis.
- More precisely, our theoretical methodology consisted in showing that market adjustments depend on regulatory choices imposed at both local and global levels. Based on simple assumptions, this paper simply allows us to theoretically insist on the “discrepancies” between local and global regulation, which is a sensitive issue in the context of strong demand for organic products all around the world. If a comprehensive cost–benefit analysis about the development of organic agriculture is carried out in the future, the various effects theoretically underlined in this paper should be precisely taken into account in such a potential analysis, because they imply complex market adjustments at both local and global levels.
Conflicts of Interest
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Wu, H.; Marette, S. Local and Global Welfare When Regulating Organic Products: Should Local Regulation Target Production or Consumption? Sustainability 2020, 12, 5492. https://doi.org/10.3390/su12145492
Wu H, Marette S. Local and Global Welfare When Regulating Organic Products: Should Local Regulation Target Production or Consumption? Sustainability. 2020; 12(14):5492. https://doi.org/10.3390/su12145492Chicago/Turabian Style
Wu, Haijiang, and Stéphan Marette. 2020. "Local and Global Welfare When Regulating Organic Products: Should Local Regulation Target Production or Consumption?" Sustainability 12, no. 14: 5492. https://doi.org/10.3390/su12145492