Water Quality, Policy Diffusion Effects and Farmers’ Behavior | Sylvain Chabe Ferret
Sylvain Chabe Ferret (Assistant Professor at the Toulouse School of Economics) will be discussing the paper Water Quality, Policy Diffusion Effects and Farmers’ Behavior.
The nitrogen cycle is one of the most perturbed geo-chemical cycles on earth. Human activity, mainly through intensive farming, releases nitrogen by-products such as nitrates and ammonium in the environment where they have wide ranging impacts on human health, biodiversity and climate change. In this paper, we study the impact of one of the earliest and most ambitious regulation of nitrogen use in the world: the EU Nitrate Directive. The EU Nitrate Directive not only sets limitations on the amount and timing of application of nitrogen but also imposes the adoption of modern nitrogen management tools in an effort to increase nitrogen use efficiency. The geographical and temporal variation of the implementation of the Nitrate Directive opens up the possibility of estimating its effects using a Difference In Difference (DID) approach. We adapt the DID estimator to account for the existence of diffusion effects along river streams and for the non-point source nature of pollution by nitrates. We state conditions for identification of and provide ways to do estimation and inference for causal effects in the presence of diffusion effects on a network under the DID assumptions. Applying our estimator to rich data on water quality, biodiversity, farmers practices, profits and Total Factor Productivity, we find that the EU Nitrate Directive has been able to reduce the concentration of nitrates in surface water by 1.23 milligrams per liter, a decrease of 8%. We find a clear dose-response relationship, with higher impacts where more of the upstream area is covered by the Directive. We find that other biochemical indicators, as well as biodiversity, as measured by the number of fish and fish species, also improved thanks to the Directive. We also find that the Directive managed to improve farmers’ nitrogen use efficiency and productivity and did not decrease their profits. Finally, we show that not accounting for diffusion effects would bias downwards the estimate of the effect of the Directive, and that the most recent geographic discontinuity estimators would detect no effect at all.
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