|Abstract or Summary
- Linear economic models were utilized to predict effects of various
environmental control policies on individual firms. Four different
linear models were specified and in some instances relatively
minor changes in specification were made which resulted in additional
sub-models. Models varied as to numbers and types of fixed
factors, variable cost relationships, market products, and fixed
factor requirements. Once each model or sub-model was described
five or six policies were theoretically applied to that model. Policies
used were: taxing market products, taxing variable factors,
taxing a non-market externality (external diseconomy), a standard
on the quality of the externality, subsidizing variable factors and
subsidizing fixed factors.
It was assumed that the non-market externality would be produced
in a fixed ratio with market products. Furthermore, the
assumption was made that alternative production techniques were
available to the firm. The important aspect of the various techniques
was that the proportion of the externality generated by a
market product varied by production method. Consequently, strong
emphasis in the analysis was placed on determining whether or not
a given policy could induce the firm to switch to a lower externality
generating production method.
In addition to the strictly theoretical analysis a linear irrigated
farm model was described. The farm model produced irrigation return
flows which were considered to be creating stream pollution.
From the theoretical analysis likely policies for controlling return
flows were ascertained. Some of these policies were then applied
to the farm model. Specifically, a water tax (variable factor tax)
and a constraint on delivered water were administered to the farm
Based on the theoretical analysis taxing market products did
not appear to be a particularly desirable policy. For some models,
the market product tax actually increased externality production.
A tax on externality production (effluent tax) seemed to give the most
consistent effects of all policies across all models. The externality
tax either reduced or had no effect on externality production. The
biggest shortcoming of the externality tax appeared to be administrative.
Before the tax can be used the externality must be
identifiable as to source. Consequently, a search was made for
policies which generated results similar to the externality tax yet
were not subject to the same administrative problem. It appeared
that under specific conditions a variable factor tax, a tax on specialized
fixed factors or a combination of a tax-subsidy scheme could
be effective alternative policies. However, these latter policies, if
improperly applied could result in increased externality production.
Taxes as high as 65 cents per acre inch of water were applied
to the farm model. Depending on assumed conditions the water tax
resulted in reduced irrigation return flows. When labor was constrained
tax levels needed to be higher to reduce return flows compared
to the case where labor was not constrained. Placing a restraint
on delivered water also reduced return flows. Again, when
labor was constrained this policy was not as effective as when labor
was unconstrained. The water tax policy reduced net returns to the
farm model considerably more than the constraint on delivered water.
The main difference in net revenues was attributable to the total water
tax bill rather than reductions from other added costs and/or enterprise