Environmental Economics

.. Bay from construction and development helps the oyster and marine life population, the costs to agriculture and industry have an impact on the net economy. In 1986 Maryland enacted the Chesapeake Bay Critical Area Protection Program, which gave the government the right to regulate the land usage in the critical areas of pollution surrounding the Bay. Beaton and Pollock did an in depth survey using the Critical Valuation Method and Hedonistic pricing in order to define how this mandated change would affect the land value of the areas selected, affecting agriculture, industry and residential housing. The project is difficult because it is hard to compare different land values because of the many variables that effect land prices.

They were able to include a variable comparison ratio in order to limit their price result to the one variable they were interested in, which was the CAPP act. They found that the value of residential property in the selected areas went up by almost 100%, while the value of the agricultural and industrial land went down greatly. The pecuniary externality of this method upon the industry and agricultural land proves that large businesses are not readily willing to decrease their waste without government mandates. Therefore the government has to control part of the Bay pollution through command and control, permits and subsidies. Command and control, combined with other solutions, such as privatization, could help to significantly reduce pollution in the long run. The shared costs and benefits of these two methods would have the least cost to both parties because they could share the costs, even though the fisheries reap most of the benefits.

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Privatization of the oyster industry is a feasible solution to the pollution problem in the Chesapeake Bay. Since oysters tend to be rather stagnant, a harvester could buy a spot of the Bay to dredge. The government would have to find a way to enforce this method through fines or coast guards; the cost of enforcement would probably be fairly low as compared to the benefits for fisheries. This would be a radical change in the industry because fisheries are considered a near perfect example of a common property resource. Through this method over-harvesting would be diminished as well as pollution greatly lessened.

The problem with this method is the polluters would cause a technical externality upon the oyster bed owners. Their pollution would directly effect the economic value of the bed. Hence the government would have to mandate waste controls for on-land industry to protect the fisheries. The owners, through bed pricing and innovative pollution technology control in the water, would deal with the pollution that is still left over. Capital, in this instance, would be substituted for labor; so many sea-men would lose their jobs, but most are losing their opportunity cost through fishery labor anyway. So the loss of their preferred job is offset by their ability to make better wages elsewhere (Santopietro and Shabman, 413).

The Privatization of Oyster fisheries seems to be the least cost solution to the government in attempting to find the optimal satisfaction between land industry and Bay fisheries. Privatization does not work for all Bay industry. Fisheries that specialize in fish and crabs cannot be privatized because of the migration of their products. The fishing industry in the Chesapeake Bay has declined in sales by and average of 10% during 1996 and 1997 (University System of Maryland). The loss in seafood sales is due to a fish disease called Pfiesteria.

The Pfiesteria problem became very publicized in 1997. People in the Bay area became aware of the dangers of eating infected seafood and began buying less fish. Lipton did a major survey of 360 seafood businesses to find out how the disease was effecting the local economies of the Chesapeake Bay areas in Maryland. He found the industry suffered a 43 million-dollar loss in 1997 due to the disease awareness among consumers. The hardest hit by the decline in sales were grocery stores and local restaurants. The actual fisheries were able to sell their extra fish in other markets where Pfiesteria awareness was low, so they did not suffer as badly as others did.

Grocery stores sold almost 13% less Chesapeake Bay seafood then the year before. Restaurants were also unable to sell the local seafood so they had to import more expensive seafood. These results do not show the entire economic effect because people substituted meats for fish. The grocery stores and restaurant sold more of their other products that helped to counter balance the decrease in seafood sales. The true economic losers in the situation were the stores and restaurants that specialized solely in seafood (Lipton).

To help reduce the outbreaks of Pfiesteria, Maryland has enacted a Water Quality Improvement Act. The WQIQ is meant to lessen the nutrients in the Bay spurring growth of its inhabitants. The government is currently willing to spend a great deal of money to clean up the Bay, they spent over 80 million dollars in making sewage treatment plants more efficient, proving the economic benefits of fisheries are worth protecting. The act encourages subsidies to agriculturists, which will cost the government greatly. The urban impacts of the WQIQ are minimal; parks, state owned lands, golf courses and large landscapers must test and record the nutrient balances in the soil; proper management will ensure the simplicity of this law (Parker 1). The WQIA costs the agricultural farmers the most. Fertilizer runoff creates a great amount of pollution for the Chesapeake Bay.

The act mandates that poultry litter, which is rich in Phosphorous, will be rationed as fertilizer. The farmers must buy special chicken food that will reduce phosphorous output and they will have to supplement phosphorous free fertilizer for the low cost poultry litter they usually use. Maryland is making the change less costly to the farmers through subsidies. The state government is making fertilizer 50% tax free, paying $3 an acre for fertilizer and assisting the farmers in finding buyers further inland for their poultry litter. The government is even paying farmers who switch from poultry litter to approved fertilizers 4,500 dollars per year for up to three years (Parker 5). The government has not found the optimal solution in reducing Pfiesteria in the Bay because the cost of the WQIA are very high to the government and the benefits to the Bay are smaller then the costs. Since Pfiesteria has only infested small parts of the Bay, and Phosphorous is not the only agent causing the problem, it seems that the government has not found equilibrium between costs and benefits through the WQIA.

Reducing Phosphorus is important, but the subsidy money could be put to better uses. For example, there are plants that use phosphorus and reduce the amount in the soil. Supplying an abundance of these plants to farmers in the critical zones around the Bay area would be a low cost alternative to subsidizing farmers. Also enforcing the poultry litter mandate would be fairly difficult and expensive. There are better solutions for the amount of money the government is spending to reduce phosphorous levels. The importance of the fishery industry in the Chesapeake Bay is obvious because the government is willing to spend huge amounts of money in order to clean it up. The most plausible solution to the problem is a sharing of cost between inland and water dependent firms.

The costs to inland industry and agriculture are minimized by the governments willingness to subsidize. The benefits to the Chesapeake Bay economy are larger then the government costs, if they choose the best options, because it is the nations largest estuary. The solutions are not easily attainable, but through costs and benefits of pollution control it is possible to find feasible solutions that help to minimize the problems that the Bay faces in the long run. Economics.