Browsing by Subject "economic analysis"

The objective of this thesis is to examine and compare, both theoretically and empirically the private profitability and social desirability of subsurface drainage and drainage by open ditches, under cultivation in Finland. Private and social optimums for cultivation are examined for (1) field without any drainage system, (2) field with subsurface drainage and (3) field with open ditch drainage. The results of optimum solutions are compared with each other to define the optimal drainage system. Incentives for fertilizer use and intensiveness of open ditch drainage are then set accordingly. In defining the social desirability, environmental externalities are taken into account. Within the framework of this study, the environmental externalities are the social costs of nutrient runoffs and the social benefits of maintenance of biodiversity by open drainage ditches. The approach to biodiversity herein is twofold. First, biodiversity is perceived as local species richness (alpha diversity) and then as landscape diversity (gamma diversity). Landscape diversity is defined within an area of 1 km2 and it takes into account the spatial autocorrelation of species diversity at landscape level. Numerical results show that subsurface drainage is privately a more profitable drainage system than open ditch drainage. When comparing the social desirability, calculations show that open ditch drainage is more desirable, but that is mostly due to the difference in nitrogen leaching compared with subsurface drainage. The empirical data used in calculations, concerning the nitrogen leaching, is partly insufficient and based on crude assumptions. Therefore it is not possible to conclude that open ditch drainage is socially more desirable. If biodiversity is perceived as landscape diversity, the value of social benefits of maintenance of biodiversity by open drainage ditches is 22.523 % higher than if biodiversity is calculated as local species richness. Based on the results, a cultivated field with either drainage system will lead to higher private profitability and social desirability than cultivation without a drainage system. Monte Carlo simulation shows that the results are stochastically sensitive. If the values of empirical parameters are drawn from normal and lognormal distributions with the standard deviations of 10 % of expected values, the standard deviations of the results can be as high as 38 % of the expected values.