Integrated Assessment Models For Agricultural Systems:

Integrated Assessment Models for Agricultural Systems:

Micro-Foundations, Aggregation and Market Equilibrium

PhD Research Proposal

Roberto Valdivia

Department of Agricultural Economics and Economics, Montana State University, USA

February 2006

PhD Research Proposal to Wageningen University, The Netherlands.

Copyright 2006 by Roberto Valdivia. All rights reserved. Readers may make

verbatim copies of this document for non-commercial purposes by any means,

provided that this copyright notice appears on all such copies.

http://www.tradeoffs.montana.edu/pdf/PhD-Proposal-2-06-06.pdf

1

Integrated Assessment Models for Agricultural Systems:

Micro-Foundations, Aggregation and Market Equilibrium

PhD. Research Proposal

By Roberto Valdivia

February, 2006

SUMMARY

One of the aims of agricultural research is to develop sustainable agricultural

production systems that balance the often competing goals of profitability, human and

environmental health, and equity. Typically, the integrated assessment required for this

analysis takes place at the farm level where farming systems are analyzed, and changes to

the cropping system are designed for a better performance of the system given numerous

boundary conditions including the agro-ecological conditions, markets and agricultural

policies. Although the analysis is only valid at the farm level, the results are often used at

higher scale levels assuming a certain level of representativeness of the farming system.

At higher scale levels different processes become important and we have to deal with the

intrinsic variability of the population of farming systems. In addition, interactions

between farms become important. Boundary conditions assumed to be constant at the

farm level (e.g. prices) are now driven by the population of farmers.

The tradeoff analysis model links site-specific bio-physical process models and

economic decision models, and thus deals explicitly with the intrinsic variability of farms

and growing conditions, but treats prices as exogenous. This study will develop methods

to link the tradeoff analysis model to market models that treat prices as endogenous. This

price-endogenous model shows how both market-level demand-side and supply-side

variables affect the spatial distribution of economic and environmental outcomes. This

study will investigate the effects of price endogeneity at different spatial scales (farmregion-

market) using empirical studies of climate change, environmental services and soil

conservation.

2

OBJECTIVES

a. History

Modeling agricultural production systems: Scale issues, heterogeneity and aggregation

problems

There is a growing interest in developing methods and tools to assess the

sustainability of agricultural production systems, including their economic,

environmental and human health impacts (UC SAREP, 2002). A growing body of

evidence shows that economic and environmental impacts of agricultural systems depend

on farm management decisions and on the interaction of these decisions with site-specific

environmental conditions. On the one hand, methods have been developed to integrate

biophysical and economic models at a disaggregated level with the objective of capturing

the heterogeneity of the physical environment and economic behavior of farmers (see for

example, Hochman and Zilberman, 1978; Just and Antle, 1990; Goddard et al., 1996;

Fleming and Adams, 1997; Antle et al., 2000; Brown, 2000; Antle and Capalbo, 2001;

Antle and Stoorvogel, 2001; Mathur, 2003; Stoorvogel et al., 2004b). On the other hand,

aggregated models based on the construct of "representative agent" have been widely

used in policy decision making. Market equilibrium models are a good example of these

models. They have been used to evaluate welfare implications of a particular change

(policies, climate change, etc.), using representative data of producer and consumer

behaviors. This implies that aggregated models do not capture the biophysical and

economical heterogeneity that characterizes the production system. Conversely, results

from integrated assessment models that capture this heterogeneity have not been linked to

market equilibrium models. The literature reviewed shows there is a need to address this

gap between integrated assessment models and market equilibrium models.

As more micro-data have become available, more studies in the literature have

compared outcomes from aggregated models versus micro models. Wu and Adams

(2002) show that aggregate models may predict aggregate variables