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Mixing Economic and Administrative Instruments: The Case of Shrimp Aquaculture in Thailand 1

Mxng Eonom and Admnstratve Instruments: The Case of hrm Auaulture n Thaland By Randall A. Bluffstone Portland tate Unversty Portland, Oregon Dararatt Anantanasuwong hool of Develoment Eonoms
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Mxng Eonom and Admnstratve Instruments: The Case of hrm Auaulture n Thaland By Randall A. Bluffstone Portland tate Unversty Portland, Oregon Dararatt Anantanasuwong hool of Develoment Eonoms Natonal Insttute of Develoment Admnstraton Bango, Thaland and Ivan Ruza Chez Baudy, Vovray-en-Bornes, Frane Abstrat Eonom nstruments offer the otental to reah re-determned envronmental goals at a lower aggregate ost than less nentve-based measures, but admnstratve undernnngs rual to the effetve funtonng of eonom nstruments may be lang n develong ountres. For ths reason, ragmat analysts and olymaers often advoate the use of so-alled mxed nstruments that ombne nentve mehansms wth mroved admnstratve arrangements. Ths aer exlores suh ossbltes wth referene to ntensve shrm auaulture, whh domnates shrm farmng and s an mortant eonom setor n Thaland. Ths atvty has been ted as a major ontrbutor to envronmental degradaton n Thaland and several other ountres through destruton of mangrove forests, salnzaton of land, sludge dsosal and, n artular, water olluton. An analytal model s resented that hghlghts some of the ey oortuntes and lmtatons of mxed nstruments aled to shrm auaulture. Mxed nstruments are then roosed and evaluated. The authors would le to than the Government of Thaland and the Asan Develoment Ban for suortng muh of the analyss underlyng ths aer. Areaton s also exressed to Dr. Tongroj Onhan and Clve Mason, who dreted the rojet. The helful omments of two revewers are also gratefully anowledged. The vews exressed n the aer are, however, solely those of the authors. . Introduton Ths aer fouses on the use of eonom nstruments for envronmental management n the shrm auaulture setor n Thaland. Though less ommon than n hgh nome ountres, eonom nstruments are used n develong and transton eonomes, and beause of the otental to rotet the envronment at lower aggregate ost, ther use s f anythng nreasng. 2 For examle, olluton harges are wdely used n Chna Dasguta et al, 200, Central and Eastern Euroe and the former ovet Unon Bluffstone, 2003; Bluffstone and arson, 997, and n Malaysa Vnent et al 997. As Bluffstone 999 and Dasguta et al 200 ont out, even low harge rates an have sgnfant effets when few abatement measures have revously been undertaen. Due to the exstene of very low-ost olluton abatement oortuntes, eonom nstruments are ndeed lely to be eseally useful n develong ountres. 3 But eonom nstruments offer flexblty n ountres that may have serous ubl admnstraton roblems. Envronmental regulatory agenes are often oorly funded and staffed, leadng to montorng, enforement and admnstratve roblems. Eonom nstruments an also mose addtonal ubl admnstraton burdens. For examle, when usng olluton harges extra montorng and reortng reurements may be reated. Insttutons for assessng, aountng for and olletng harges are also needed, as well as more enforement beause harges may nrease nentves for evason. It s also unlely, gven nformaton merfetons and oltal ressure from owerful olluters, that harges would be set at anythng lose to Pgouvan levels. The best we an hoe for, therefore, s a ost-effetve rather than an effent alloaton of abatement effort. Also, whle soal osts are lower wth olluton harges, rvate setor osts are hgher. 2 Envronmental regulaton usng olluton ontrol tehnology and emssons standards redomnates worldwde. Often suh methods are alled ommand-and-ontrol, whh we onsder too ejoratve. Poly nstruments ome n many forms. For a state of the art dsusson, lease see terner Tradable emsson rghts, le those used to hel ontrol sulfur-doxde emssons n the U, are muh less ommon, robably beause of ther sohstated admnstratve suort reurements. 2 Mehansms are therefore tyally needed for reylng harge revenues ba to rvate setors. Envronmental funds are often used for ths urose, whh reates ts own set of hallenges Bluffstone, 2003; Anderson and Zylz, 999. Puttng these rtal ees n lae s ertanly muh less than foolroof n most develong ountres. For ths reason, analysts often advoate the use of so-alled mxed nstruments that ntrodue nentves that mrove effeny, but also ontan safeguards to allow for mlementaton realtes even f suh aommodatons mly effeny osts. Key features of suh systems are smlty, larty, lmted demands on regulators and oltal feasblty. As dsussed n terner 2003 and llustrated n several examles, desgnng nstruments always nvolves tradeoffs, but develong and transton ountry olymaers tyally fae many more onstrants than ther ounterarts n rher ountres. ubstantal omromses therefore must be made to ut feasble nstruments n lae. Bluffstone and arson 997, for examle, mae ths ont wth regard to the desgn of olluton harge systems n Central and Eastern Euroe. After revewng the exerene of eleven ountres, eroa da Motta et al 999 onlude that whle substantal exermentaton wth eonom nstruments has ourred n atn Amera and the Carbbean, nsttutonal and admnstratve onstrants must and are beng aommodated when usng suh tools. The ont that envronmental oly nstruments must aommodate nsttutonal and oltal ontexts when the reverse s unlely has also been made for g farmng n Mexo Druer and ataz-ohman, 2003, water tradng Bjornlund and MKay, 2002 and vehle emssons n Inda Pandey, Jurado and outhgate 999 dsuss the use of very rudmentary eonom nstruments for addressng ar olluton roblems n Quto, Euador as a way to aommodate regulatory and oltal dffultes. To redue forest degradaton due to fuelwood uttng n Neal, Bluffstone 998 even advoates the use of subsdes. 3 Ths aer sees to add to the lterature on the use of mxed nstruments n develong ountres through an examnaton of shrm auaulture n Thaland. We onur wth muh of the lterature and argue that ombnng eonom nstruments wth targeted admnstratve measures and reatvely adatng them to on-the-ground realtes an mae oly systems worable and allow more to be aomlshed wth fewer resoures. The followng seton rovdes an overvew of the eonom and envronmental ssues assoated wth shrm auaulture n Thaland and dsusses the exstng set of envronmental oles. eton 3 resents an analytal model that hghlghts some of the ey nentve ssues and roertes of anddate ombnatons of eonom and admnstratve nstruments. The model suggests that tang admnstratve realtes nto aount through the reaton of mxed nstruments mroves effeny, but leaves systems short of frst-best outomes. eton 4 fleshes out the full set of mxed nstruments and eton 5 onludes. 2. Baground The ost effetveness offered by eonom nstruments s eseally mortant when a setor s an mortant soure of outut, emloyment and foregn exhange. hrm auaulture n Thaland ertanly fts ths desrton and has seen dramat growth durng the ast twenty years. From around 5 thousand tons rodued n the early 980s, shrm auaulture outut rose to over 60 thousand tons by 99. By 995, roduton reahed 260 thousand tons, mang Thaland the largest roduer of farmed shrm, wth aroxmately 25% of world outut. Due to dsease outbreas and ntensfed ometton, Thaland no longer s the to roduer, but t remans the world exort leader wth one-thrd of the world maret tartng late n 2000 there was a downturn n demand from Jaan and growng ometton from Vetnam, Chna and Brazl. As shown n Table, these develoments aused res to fall 50% durng , whh ontrbuted to a substantal ontraton of Tha shrm auaulture hrm auaulture n the develong world s a 4 small-sale busness. The Tha ndustry, for examle, s haraterzed by a large number of small owner-oerated farms develoed from land onverted from other uses. In 995 there were aroxmately 26,45 shrm farms n Thaland ouyng a total of 468,385 ra. 4 Aroxmately 80% of farms are less than ten ra and over half of all shrm farm owners have only bas levels of eduaton Mdas Agronoms, 995; Patmasrwat et al, 998. Aordng to the FAO, shrm farmng has heled many avod serous overty PERAA, Table Farmgate Pres of Bla Tger hrm Year Nomnal Pre bahtg, * Exhange Rate Pre er Klogram 99 average $ average $ average $ average *** $ January ** $ etember ** $ to 999 res from AEA Tehnologes 200 * Based on 30 eesg ** based on 40 ount er g. *** 3 July 2002; Fen 2002 based on 40 ount er g. Table 2 Orgnal use of land onverted to shrm farmng er ent of total area n Orgnal and Use Total East Inner Gulf Andaman Coast Re feld 53.2% 45.8% 66.0% 4.2% Mangrove forest 2.9% 33.3% 6.0% 3.9% Rubber lantaton 0.9% 0.0% 2.7% 33.3% Frut orhard 7.2% 7.3% 8.0% 5.9% Idle land 8.9% 3.% 4.0% 6.9% Other 6.9% 0.5% 3.3% 8.8% oure: Patmasrwat 997 based on 348 observatons Re addes have been a artular target for onverson to shrm farms. Table 2 resents the attern of land onverson durng Imortant regonal varatons exst, but re felds are by far the most mortant former use. The roft from addy ultvaton has generally been less 4 One ra euals aroxmately 0.6 hetares 0.4 ares. tatsts on total area and total numbers of farms should be treated as aroxmatons. Only farms over 50 ra are reured to regster ther oeratons. 5 than 20% of a well-run ntensve shrm oeraton AEA Tehnology, and ublly funded tehnal hange s one reason for ths suerorty. Major mrovements n hathery roduton by the Thaland Deartment of Fsheres resulted n lower res of seed sto, and mrovements n feed tehnologes allowed for dramatally nreased yelds. Before 984, Thaland harvested 90% of ts shrm from large tdal onds establshed along the Gulf of Thaland. Most of the mangrove forest loss ourred durng ths erod of extensve shrm farmng Barber and Cox, In the late 980s the aroah to shrm roduton hanged as the eonom otental of large, hghly rzed, bla tger rawns Penaeus monodon beame lear. Produton systems beame more ntensve, wth stong rates of 40,000 larvae er ra versus for extensve farms. Ponds also moved further nland, but remaned n ontat wth salt water va anals. As of 2000, aroxmately 80% of farms were ntensve KPMG, 200. Intensve shrm auaulture s the most rodutve and roftable mode of shrm farmng, but t s also rsy. Intensvely stoed shrm are fed hgh ualty fsh meal and reure addle wheels and ar jets to mantan dssolved oxygen at aetable levels. Even wth areful management, low oxygen and hgh ammona onentratons are ommon. 6 hrm an and do oexst wth batera and vruses, but stress from ntensve stong nreases susetblty to dseases. Wthout roer management, dsease an over-run onds, mang them too ontamnated for roduton Patmasrwat et al, 998. Whle the 990s maret boom was good news for oor vllagers, adverse envronmental mats of ntensve systems also beame aarent. Kasetsart Unversty 999 estmated total external envronmental osts of shrm auaulture at about $5000 er hetare er year, but f mangrove learng was nvolved those osts jumed to $ Hgh stong denstes rodue 5 Patmasrwat et al 998 uotes soures that suggest the brea-even re for ntensve shrm auaulture s aroxmately $4.00 er logram. Even urrent res are well above ths level. 6 These ondtons would ll many shrm, but are less harmful to bla tger shrm. 7 athratha and Barber 200 estmated the welfare loss from mangrove deforestaton n urat Than Provne at $27,264 to $35,92 er hetare ted n Barber and Cox, Ths s substantally hgher than n Kasetsart 999 6 tox effluents that ollute oastal eosystems, redung fsh athes and toursm. BOD, ntrates, hoshates, batera, antbots and fungdes are regularly released nto waterways Thongra et al, 997; Toownas, 998; Derberg and Kattsmul, 996, but the majorty of olluton roblems our when large uanttes of hghly onentrated effluents are dsharged from onds at the end of roduton yles,. Controllng those erod releases an average of 2.5 er year s therefore the ey to redung olluton from shrm auaulture Toownas, 998; KPMG, Eah ra of ond area also rodues about one-half ton of dry weght sludge er ro. The man roblems assoated wth sludge are that t s often dumed nto anals and on land. Throughout shrm farmng regons there are sludge les that ontrbute to salnzaton of land and groundwater Boyd and Musg, 992, Brgg and Funge-mth, 994. Vrtually all shrm auaulture systems n Thaland are oen, meanng management of ond water ualty nvolves regular exhanges wth outsde waterways. The sread of dsease from one farm to another s therefore an ever-resent rs, and edems have been a major roblem. For examle, n 990 an edem wed out 90% of farms along the Inner Gulf of Thaland. Farmers abandoned ther onds and many mgrated to the southern Gulf of Thaland and Andaman ea oasts. However, dsease soon reahed those areas and n 996 there was a shar delne n roduton, ausng farmers to move on. Farms usng oen systems tyally survve 2 to 5 years. 9 It s hghly unlely that shrm farmers onsder that ther wastewater emssons nrease the robablty of dsease for neghborng shrm farmers when mang roduton and water 8 In hs study of Kung Krabaen Bay, Toownas 998 fnds that effluent ualty durng harvests an be extremely oor. He also fnds, though, that deste dsharges of aroxmately 35,000 tons of wastewater er hetare er year, durng normal farmng oeratons, the ombnaton of hgh flushng and low nutrent loadngs aeared unlely to ause sgnfant eutrohaton of the Bay. 9 Aordng to Patmasrwat 997, the most mortant fator nreasng the robablty of dsease s whether farmers regularly exhanged ond water wth surroundng waterways. Regular exhange was estmated to nrease the robablty of dsease by 42 er ent. Wth roer restoraton, t normally taes fve to seven years before the land an agan be used for agrultural uroses. 7 management desons. Eah farmer s a small ontrbutor to the overall roblem and redung one farm s emssons would have a margnal mat. The roblem to be overome s therefore fundamentally one of oen aess of the tye dsussed by Gordon 954 and Hardn 968. More losed systems n whh nfreuent or no exhange ours wth ommon water hannels are a ossble soluton, but so far these are rare n Thaland. Under suh systems, effluent s dsharged only after havng been reyled a number of tmes and sludge has been removed. The roblem wth losed systems s that water must erodally be moved to holdng onds so that waste settlng an our. Ths reures aroxmately double the land of oen systems and substantally nreases osts Barber and Cox, More sludge s also generated. There are therefore two dstnt effluent-related goals: to redue effluent onentratons, artularly durng harvests and 2 to redue the sread of dsease. The rnal, though erhas not only, tehnal means for ahevng those goals, nstallaton and management of reservor and settlng onds, s well nown. Indeed a government regulaton adoted n 998 mandates these stes for all shrm farms. mall farmers need half as muh settlng ond area as feedng ond area. arge farmers fae a one-to-one rato. There s also a BOD effluent dsharge standard of 0mgl, as well as a rohbton aganst dumng ond sludge n waterways and on ubl lands. The roblem, though, s that where regulatons exst, there are huge gas. For examle, envronmental ermts are reured only for farms larger than 50 ra, whh means less than fve erent of farms need ermts Patmasrwat, 997. Most farmers therefore do not even reort ther atvtes. Montorng and enforement of even ermtted farms s vrtually nonexstent and t s hghly unlely that llegal dumng of ond sludge would be enalzed. There s also very lttle outreah, ausng many farmers not to understand envronmental regulatons, and no real enaltes for volatng settlng ond area and effluent dsharge standards. It s therefore dffult to hold volators aountable. Many, though not all, of these roblems are due to nsuffent fundng and 8 loal envronmental agenes are extremely oorly staffed and eued. Any mehansms for nternalzng externaltes, therefore, must eonomze on montorng and enforement resoures and deally over ther own osts. In sum, therefore, envronmental roteton of any nd n the Tha ntensve shrm auaulture setor s mnmal. Most farmers do nothng to redue effluent emssons, but fae no santons. At resent, they ay nothng for freshwater to dlute seawater n shrm onds; dsosal of wastewater, nludng the dsease rss they mose on other farmers; dsosal of sludge and remedaton of abandoned shrm onds. In the followng seton a model of the shrm setor n Thaland s resented, whh hghlghts the nentves of shrm farmers and the relatonsh between ther hoes and soal welfare. A model of a self-nterested oerator s frst onsdered and that model s ontrasted wth a model of soally otmal behavor. Fnally, mxed nstruments are ntrodued nto the self-nterested farmer model and t s shown how suh addtons mrove erformane, but fal to aheve the dealzed frst-best outome. 3. A Model of hrm Auaulture It s assumed n the model that shrm farmers use ntensve systems and maxmze rofts. and s a ure rvate good. A total of re-tang farmers subsrted by fae a ommon exogenous outut re P and hoose ther target outut levels, whh are realzed at the end of the erod, based on the amount of feedng ond they nvest n at the begnnng of eah erod. Other nuts, suh as feed, antbots and eletrty, are assumed to be roortonal to. Farmers use oen roduton systems and draw on water from bays and other oastal waterways. Ths ey roduton nut s assumed to be a uas-ubl good and not red. Beause farmers use ommon ool water, outut s unertan and farmers have only a robablty they wll avod dsease and be able to harvest ther ros. Wth robablty, onds are stru by dsease and farmers reeve no revenues. Under suh a rumstane they nur only osts. Farmers an, 9 0 however, hoose the degree to whh ther roduton systems are losed by the amount of settlng ond area they have. More losed systems nreases n nrease the robablty of suessful harvestng, but wth dmnshng returns. gnfant externaltes also exst. The robablty of any agent harvestng s dereasng n the outut of all other farmers and nreasng n the degree to whh they use more losed systems relyng on settlng onds j, though agan wth dmnshng returns. These assumtons are formalzed n and a. 0 A farmer s maxmzaton roblem s gven n 2 and restrtons on the ost funton are resented n 2a. Total ost s nreasng n roduton ond area and. Margnal ost s nreasng n due to the need for better umng eument and land as auaulture systems are losed. Total and margnal osts are also nreasng n the orton of ond sludge farmers hoose to roerly dsose D at the end of the roduton yle rather than dum on land and n waterways at no ost. Possble ways to defne roer dsosal are dsussed n the next seton. The ost funton s also searable. Maxmzng exeted rofts by hoosng, and D and rearrangng yelds the three frst order ondtons n 3a, 3b and = D 0 In the followng euatons,...,,... =,,,D,, E, and D,, are general form funtons. All other exressons of the form X Y, Z ndate multlatve relatonshs. 0 0; 0; 0; 0; 2,,...,, = D D a D P MaxE π 0 0; 0; 0; 0;...,, = j j j a P a =...,, 3... P b = 3 Euaton 3a says that a roft-maxmzng farmer wll hoose the outut level where robablty-weghted margnal revenue euals margnal ost. The seond euaton says that farmers hoose suh that the margnal ost of an nrease n euals the robablty-weghted value of the outut from an nrease n. In eulbrum, therefore, shrm growers nvest n safety as long as exeted margnal benefts exeed margnal osts. Euaton 3 says that roft maxmzers fang ostve margnal osts do not utlze roer sludge dsosal methods. The model hanges ute a bt f a soal welfare-maxmzer governs resoure alloaton. A guardan of ommon welfare would see to maxmze the dfferene between total exeted rofts from shrm roduton, nludng the rs of dsease, and the total external damages aused by the setor. These damages nlude a the rs of sreadng dsease to other farmers.e. a reduton n j aused by farmer ; b margnal damages α of water olluton emssons when feedng onds are urged E and margnal damages β of mroerly dsosed sludge. Emssons are a ostve funton of and negatvely related to. Imroerly dsosed sludge, whh s dumed n anals and on land, s a negatve funton of roerly dsosed sludge D and ostvely related to the amount of settlng ond used, beause more sludge s reated wth more settlng onds. E and are determnst based on the hoes of, and D. For eah shrm farmer the soal welfare funton n 4 s maxmzed. 4 oal Welfare = [...,... P, = D α { E, } β { D,, }], Maxmzng 4 by hoosng, and D otmally and rearrangng mles the frst order ondtons n 5a, 5b and 5. α and β
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