Economics

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Climate change is expected to adversely impact crop productivity and forest stocks of the planet, which will pose food security challenges and complicate carbon mitigation goals. This paper asks in what ways warming temperatures may affect the ability of REDD+ programs to sequester carbon and support rural livelihoods. An example from the forest-rich central Himalayan region of India is used for modeling the implications of crop productivity decline on land use change decisions. Local communities derive their livelihoods through multiple avenues including forestry and farming. When faced with warming-led declining crop productivity, communities may find it attractive to enroll farmland into REDD+ programs. However, a reduced biomass growth rate due to increasing temperatures and declining precipitation would also lower the benefits from REDD+ participation, thereby delaying the timing of irreversible land use decisions. Results suggest that while higher carbon prices and declining crop incomes incentivize early farmland conversion into forests, a lower biomass growth rate discourages REDD+ enrolment. If communities are allowed fuelwood harvesting from forests, it could make land enrollment into REDD+ more attractive, leading to early conversion. However, the value of fuelwood to the communities plays a crucial role in determining the timing of REDD+ participation. When fuelwood is less scarce, warming will delay enrollment into REDD+ schemes. Whereas, when fuelwood is valuable to the community, early afforestation becomes an attractive option. © 2021 Elsevier Ltd

(SoHSS) School of Humanities and Social Sciences

Land Use Policy

Land use decisions under REDD+ incentives when warming temperatures affect crop productivity and forest biomass growth rates

This paper develops an integrated framework for modeling payment for ecosystem services (PES) mechanisms that deliver multiple environmental services. Specifically, under a community-led PES, forest conservation is promoted to deliver carbon and stream water benefits. The upstream community is paid for avoided fuelwood harvesting through a United Nations programme on reducing emissions from deforestation and forest degradation (REDD) program, whereas additional income is generated from water sales to the downstream communities. A bio-economic model derives optimal level of fuelwood harvesting, which in conjunction with the changing species composition of forests, streamflow hydrology and fire risks, impacts on the carbon and water generation potential of the PES project. Results indicate that forest conservation outcomes are better when water and carbon services are combined, however overall cost to the program is lower under a carbon-based PES. Changing species composition of forests creates tradeoffs between water and carbon benefits. Forest fires further challenge the viability of PES schemes through reducing streamflow and carbon sequestration potential. Recommendations for Resource Managers: Linking two or more environmental services under a single payment for ecosystem services (PES) scheme could improve forest conservation through making it more attractive to the participating communities. PES programs that combine multiple environmental services become economically attractive to participating communities through increasing their incomes. For instance, water and carbon driven services complement each other due to the overlapping benefits from improving forest biomass. However, fire risks can lower the benefits from PES and dissuade community participation. Similarly, the ecological and hydrological dimensions of PES projects that offer carbon and water benefits need to be understood and incorporated within PES framework design to enhance their durability. Conservation of mixed forests is more responsive to water-based PES payments, in comparison to monoculture oak forests, however, mixed forests are also more vulnerable to degradation in absence of cooking fuel subsidies. © 2021 The Authors. Natural Resource Modeling published by Wiley Periodicals LLC.

Fulltext

Natural Resource Modeling

Can combining two environmental services under a single PES program result in better environmental outcomes and lower costs?

The Covid pandemic has resulted in an economic shock. However, not all sectors are affected uniformly. We study two channels on the supply side through which the shock is amplified differentially across industries. First, we look at the dependence on global value chain (GVC), measured as share of imports in total inputs, which measures an industry’s integration with the GVC. A disruption in GVC will amplify the shock more for a higher value of the import share in inputs. Second, we construct a network of industries based on inputs used and calculated a dependency score for each industry. Higher the dependency score, greater is the chance for disruption. We find that both these factors are correlated with output share of the industries, implying amplification and a significant impact. Using IIP data for the months post the onset of pandemic, we find that disruption is higher in industries with higher import share and higher dependency score. Finally, we create a vulnerability index using these two variables. Industries with higher VI score are likely to face greater challenges in the recovery process. © 2022 selection and editorial matter, Rajib Bhattacharyya, Ananya Ghosh Dastidar and Soumyen Sikdar; individual chapters, the contributors.

World University root node

The Covid-19 Pandemic, India and the World: Economic and Social Policy Perspectives

IMPACT OF COVID-19 ON MANUFACTURING INDUSTRIES IN INDIA: Networks and trade dependence

Industrial effluents and municipal wastewaters are increasingly finding their way into freshwater bodies, posing serious health and environmental challenges. In this paper, the potential for industrial wastewater remediation through agroforestry is explored for a peri-urban farming region in India. Farmers are incentivized under a payment for ecosystem services (PES) mechanism to convert their farmlands into poplar-based agroforestry and utilize industrial effluents for irrigating trees. Additional income can be derived through sale of poplar timber which enhances the attractiveness of such a PES mechanism. A dynamic optimization model compares farmers' optimal land use allocation to a socially optimal case. Further, the firm's effluent discharge outcomes are compared to an alternative arrangement where it is fined for discharging untreated wastewater into waterbodies in the absence of the agroforestry remediation option. Results support the attractiveness of such PES mechanisms in addressing the industrial effluent discharge problem while simultaneously mitigating the effects of water scarcity through wastewater reclamation. The optimal level of tax required to accomplish complete treatment of effluents by polluting firms is several times higher compared to PES payments. Further, the incentive to convert farmland into poplar plantations improves with PES payments but declines with higher profitability of agricultural crops. © 2021 World Scientific Publishing Company.

Water Economics and Policy

A Potential PES Mechanism for Agroforestry-Led Industrial Wastewater Remediation using Short-Rotation Trees

We estimate higher order risk preferences of farmers from a water scarce region in West Bengal, India. We then examine correlations across risk aversion, prudence and temperance attitudes of farmers, and explore associations of these preferences with household characteristics. Our experimental findings indicate risk seeking behaviour of farmers. We find that farmers took more prudent and temperate decisions. Risk aversion and prudence have a significant negative correlation, whereas prudence and temperance have a significant positive correlation. Individual characteristics such as age, education, and entrepreneurship, income and value of assets are also correlated with various risk preferences. Increased stated drought resilience of farmers is positively correlated with prudence. Farmers affected by water scarcity in the Kharif make imprudent choices. Farmers with higher cropping intensities exhibit high levels of prudence and temperance. These findings have important theoretical and policy implications which we discuss in the paper. © 2021, The Indian Econometric Society.

Journal of Quantitative Economics

Exploring Higher Order Risk Preferences of Farmers in a Water-Scarce Region: Evidence from a Field Experiment in West Bengal, India

In this paper we quantitatively analyze the real and nominal frictions which have shaped up economic fluctuations in the past two decades for the Indian economy. Our results provide guidelines for building future structural models to replicate its business cycle properties, for both real and monetary variables. We use the Monetary Business Cycle Accounting framework (Sustek in Rev Econ Dyn 14(4):592–612, 2011; Chari et al. in Econometrica 75(3):781–836, 2007), and quarterly data from 1999–2017, which is a first for the Indian economy. We find that the distortions in efficiency and investment wedges capture most of the fluctuations in output, investment and hours worked. Up to half of consumption dynamics however are accounted for by the labor wedge. We also find that investment frictions have decreased but labor market frictions have increased over time, indicating reforms in financial sector making an impact and the need for reforms in labor markets. Taylor’s Rule wedge matches up to 50% of inflation, and interest rate is well accounted by the asset market wedge. © 2021, The Indian Econometric Society.

Monetary Business Cycle Accounting Analysis of Indian Economy

Municipal effluents running off into natural wetlands pose significant challenges to the latter's sustainability while also threatening the livelihoods of dependent communities. In this study, the potential for promoting constructed wetlands on agricultural farms is explored as a means towards restoring degraded natural wetlands. Specifically, a payment for ecosystem services mechanism is developed where farmers are compensated for discharging treated wastewaters into streams entering natural wetlands. Farmers can also utilize the treated wastewater for irrigating their crops, thus augmenting farm incomes. An optimization model derives constructed wetland adoption rate on agricultural farms in order to maximize ecosystem services benefits and farmers' incomes. Ecosystem services from wetlands include direct benefits to the community through the availability of clean water and improvement in fish stock abundance through reduced nitrogen concentrations in the natural wetland. Results suggest that such payment for ecosystem services mechanisms are likely to provide strong incentives for constructed wetland adoption when both water quality valuation and fisheries-based incomes are taken into consideration. This study contributes to the literature on cleaner production and sustainability through the design of a framework for incentivizing constructed wetland technology adoption on private farms that would result in restoration of degraded natural wetlands and mitigation of pollution in rivers and waterbodies, thereby increasing their long-term sustainability. © 2021 Elsevier Ltd

Journal of Cleaner Production

Restoring natural wetlands through financial incentives based adoption of constructed wetlands on agricultural farms

We study the stable market outcome that evolves when firms, that operate in a spatially differentiated duopolistic market, recurrently choose prices and quantities via an imitation dynamic. In particular, given that firms choose both prices and quantities, we do not explicitly impose market clearing. We find that: (i) a market-clearing outcome always belongs to the set of stable long-run outcomes, (ii) when the level of market differentiation is low, non-market-clearing outcomes (with excess supply as well as excess demand) are also stable, (iii) when the level of market differentiation is not too high or too low, the stable long-run outcomes imply market clearing at prices above monopoly level, and (iv) when the level of market differentiation is high, the stable long-run outcome implies market clearing at the monopoly price. © 2019, Springer Science+Business Media, LLC, part of Springer Nature.

Dynamic Games and Applications

Evolution of Behavior When Duopolists Choose Prices and Quantities

Political Constraints and Sovereign Default Premia

Endogamy or intra-caste marriage is one of the most resilient of all the caste based practices in India. Even in 2011, the rate of inter caste marriages in India was as low as 5.82\%. In this paper we explore whether education has any relationship with this age-old practice of marrying within one's own caste. Using a nationally representative data set, the Indian Human Development Survey, we find that, in sharp contrast with the findings in the existing literature on out-marriages in the Western countries, education levels of the spouses themselves do not have any association with the likelihood of their own marriage being an inter caste one. However, couples with a more educated mother of the husband have a significantly higher probability of being in an inter caste marriage. One standard deviation increase in the years of education of the husband's mother is associated with a 10.16\% increase in the probability of inter caste marriage over the sample mean. Our analysis highlights the importance of recognizing the institution of arranged marriages in any analysis of Indian marriage markets. © 2020 Elsevier B.V.