Technology and the Environment

David Zilberman

On Interdisciplinary ResearchThe notion of multidisciplinarity has various

interpretations.• People in several disciplines work together as a team.

They each have their own approach on how to address the same problem. National Research Council committees use this method.

• Individuals or groups integrate knowledge of several disciplines in their research. Management and policy decisions require the second approach.

• Economics,engineering, and operation research can integrate disciplines that rely on natural sciences.

Technology and Food• Increase in food production was much greater than

land expansion, mostly due to technology.• The global population grew from 1 billion in 1800 to

2.5 billion to 6 billion in 2000.• Grain per capita today is 1.12 the 1950 level and at

least 1.25 the 1800 level.• Today we produce at least 7 time more food than in

1800 and 2.8 times the level of 1950.• The growth in food production led to expansion of

the agricultural land base in the 19th century. • Since 1950, farms have not increased much.

Increased Production from Increased Water Use

• Irrigated land has increased from 50 mha (million hectares) in 1900 to 267 mha today.

• Between 1962 and 1996, the irrigated area in developing countries increased at 2% annually.Irrigation increases crop yields. The 17% of land that is irrigated

produces 40% of the global food.– The value of production of irrigated cropland is about $625/ha/year

($95/ha/year for rain-fed cropland and $17.50/ha/year for rangelands).

– Irrigation allows improved timing and spatial distribution of water. It allows double cropping,

– It enables supply stabilization and production of vegetables and fruits.

`

Increased Production in Relation to Other Changes

• New inputs (fertilizers and pesticides) have been introduced.• Energy use has increased.• Labor in farming has declined; in the developed world 5% or less

of the population are in agriculture.• The agribusiness sector is growing. • The overall food sector is less than 25% of the economy.• Agricultural productivity per capita and industrialization occur in

India, China, Brazil, and Argentina.• Increased agricultural productivity benefited the urban poor and

allowed industrialization.• About 20% of humanity are in agrarian societies and have not

been exposed to modern technologies and the changes they have caused.

The Change in Production Technologies• Input/output ratios have altered; the growth in

population was accompanied by much less than proportional expansion of cultivated land and probably greater relative increase in energy use.

• There has, however, been increase in input use efficiency—more output use per unit of critical inputs—resulting from new technologies

• Obvious examples are increased crop yield because of improved varieties. Traditional methods of breeding led to crop engineering which attained higher ratios of fruits to straw.

• The high productivity of agriculture slowed expansion of deforestation.

• However, it led to new environmental issues.

Corn yield per acre has not changed for close to 100 years, and then grew by 2% annually-example of gain of biological innovation

Long-Term vs. Short-Term Production Technologies

• In the short run production and pollution technologies are not flexible. Technologies are embodied in machines (e.g., cars) with rather fixed input-output ratios.

• In the longer run, production coefficients change by investment in new technologies. For example, during the energy crisis, people slightly modified their cars, but the main response to higher price of energy was less driving. Later on, fuel-efficient cars were introduced.

Resource-Saving Innovations Are Not Limited to Agriculture

• The current level of global round wood harvest is the same as in 1976. It went up during the 1980s, declined, and has been stable for five years, less waste materials and use of recycled paper.

• Computing power-energy use and per unit computing cost has declined drastically (“Moore law” ).

• Miniaturization led to the same quality output with much less material and energy in communication, computing, radio, and clothing.

Conservation Technologies• Technologies that increase input use efficiency.• Output =f(E). E=effective input• Effective input = actual input *input use efficiency..• Actual input X, E=Xg(q,I), g(q,I) input use efficiency • Input-use efficiency depends on technology (I) and q

environmental quality. For example, irrigation has lower efficiency on sandy soils.I=0 for traditional technology and I=1 for modern technology

• The pollution Z may be the residue of unused input.• pollution= actual input * (1 - input use efficiency)• Z=X(1-g(q,I).

Example: Irrigation(Hypothetical/California)• Increased yield, reduced water, and reduced drainage

costs more.• Low-cost version (bucket drip, bamboo drip) exists.• Impact greater/adoption higher on lower quality lands—sandy soils

and steep hills.• More adoption with high-value crop, high prices of water drainage, and

output.

• Technology Irrigation efficiency

Water/ drainage

Yield(cotton)

Fixed cost/yr

Traditional .6 4.0/1.6 1200 500

Sprinkler .8 3.2/.64 1325 580

Drip .9 2.7/.27 1400 650

Other Examples

Technology Alternative Input-use efficiency Impacts

Extra cost

High precision chemical applicators

Aerial sprayer .90 vs .25 Input--pollution--

High

Improved cooking stove

Traditional Wood stove

.60 vs .20 Wood --Health++

Modest

Insulation Un-insulated homes

.7 vs ,2 Energy-- Modest

Incentives and adoption• P-output price,W=input price,v pollution price • K1 per season cost of modern technology • K0=0 per season cost of Traditional technology• Choice of input use with a given technology• PROfitI =Max Pf(qX)-WX-V(1-g(q,I))X-KI

• Optimal rule Choose X so that

• VMP of applied water=price of applied water+value of marginal residue

P∂f(E)∂E

g−W −V 1−g(q, I )[ ] =0

$

X

W

VMP modern

VMP

Traditional

XoldBefore tax

Before the externality is regulated more input is used with the dirtier technology. The modern technology is saving input and increasing yield gain may not justify extra cost.

*

B A

XnewBefore tax

$

X

W

VMP modern

VMP

Traditional

W+marginal externality traditional

W+marginal externality tmodernl

XoldAfter tax

XoldBefore tax

Externality tax reduce input sue and out put ofPolluting technology.It sued more input beforeMay use less after tax

*D

C

B A

XnewAfter tax

XnewBefore tax

The Adoption choice • Choose the modern technology if Profits1 is

greater from Profits0.

• Higher input taxed and output taxes and lower capital costs will increase adoption

• Adoption is more likely on lower land quality• Adoption is more likely when

– output price is higher – Input price is higher – Pollution tax is higher

price a b K1 K0

2 10 2 5 2

Q0 W V Y1 E1X1 Z1 profit Yo E0 X0 Z0 Profit

Extra profit

1 4 2 12 2 2 0 11 10 1 3 1 4.188 6.81251 4 2 12 2 2 0 11 11 2 3 1 6.982 4.017781 4 2 12 2 2 0 11 11 2 3 1 8.182 2.818051 4 2 12 2 2 0 11 11 2 2 1 9.266 1.733721 4 2 12 2 2 0 11 11 2 2 1 9.671 1.329351 4 2 12 2 2 0 11 11 2 2 1 10.06 0.940541 4 2 12 2 2 0 11 11 2 2 1 10.43 0.566531 4 2 12 2 2 0 11 12 2 2 1 10.79 0.206581 4 2 12 2 2 0 11 12 2 2 0 11.14 -0.141 4 2 12 2 2 0 11 12 2 2 0 12.69 -1.6944

Y=10E-2E2

K1-fixed cost 1=5, K0=0P-output price =2,W-input price, V-Tax,Q0=qulity

Technology 1g(Q,1)=1 Technology 0,g(q,0)=q

price a b K1 K0

2 10 2 5 2

Q0 W V Y1 E1X1 Z1 profit Yo E0 X0 Z0 Profit

Extra profit

1 5 2 12 2 2 0 9.06 8.7 1 2 1 1.938 7.1251 5 2 12 2 2 0 9.06 9.9 1 2 1 4.656 4.406671 5 2 12 2 2 0 9.06 10 1 2 1 5.874 3.188241 5 2 12 2 2 0 9.06 11 2 2 1 6.996 2.066631 5 2 12 2 2 0 9.06 11 2 2 1 7.419 1.643981 5 2 12 2 2 0 9.06 11 2 2 1 7.827 1.235511 5 2 12 2 2 0 9.06 11 2 2 1 8.222 0.840771 5 2 12 2 2 0 9.06 11 2 2 0 8.603 0.459251 5 2 12 2 2 0 9.06 11 2 2 0 8.972 0.09047

Higher water price more adoptionY=10E-2E2

K1-fixed cost 1=5, K0=0P-output price =2,W-input price, V-Tax,Q0=qulity

Technology 1g(Q,1)=1 Technology 0,g(q,0)=q

Another Example slightly different production function

• Y=10E-E2 q=.5 MPE=10-2E,MPX=MPE*q• g(.5,0)=.5; g(.5,1)=1• Input use efficiency of traditional technology is 50% of modern is 1• P=2.W=4.V=4 K0=0,K1=20• Optimal X0 2(10-X)*.5=4+4(1-.5) hence X0=4• Optimal X1 2(10-2X)=4 hence X1=4• Y0=16 Y1=24 Z0=2, Z1=0 • Profit0=32-16-8=8 • Profit1=48-16-20=12 adopt • The difference in operational profits (32-12) covers the extra fixed cost (20)• Adopt if K1<24Another case no pollution tax P=2.W=4. V=0 K0=0,K1=20X0=6,X1=4 Y0=21 YI=24 modern technology increases yield and saves waterProfit0=42-24=18 Profit1=48-16=32 The operational profits gain from adoption is 14Adoption is not worth while 20>14

Adoption & environmental quality

$

Q-quality0

1

Profit traditional

technology

Profits increase with quality

Below a threshold level there is no operation

Adoption & environmental quality

$

Q-quality0

1

PR0 =Profit traditional technology

PR1 =Profit modern technology

PR0

PR1

qcqm

Adoption occurs atLow qualities betweenqm and qc

Adoption and quality• PR1=Max Pf(g(q,1) X1)-W X1 -V(1-g(q,I)) X1 -K1

• PR0 =Max Pf(g(q,0) X0)-W X0 -V(1-g(q,0)) X0 -K0

• We know that – g(q,1) > g(q,0)- it increases input use efficiency– At q=1 both technologies input use efficiency is equal to 1 and both

technologies have the same output and input use– K1> K0 New technology costs more

• The yield increasing input saving and pollution reducing effects of the modern technology are higher at a range of lower technologies

• Adoption occurs at lower qualities •

Impact of pollution regulation

• Without pollution ax traditional technology is generating less output with more input

• After tax the modern technology may be using more input and output.The gap of output increases

•

Technologies and Substitution• At modern era technologies replace

– Human effort – Natural resources with– Human capital – Physical capital– Energy

Technology and the Poor• Viability and adoption of technologies vary by location,

economics, and cultural and climatic situations. Technologies need to be adapted to locations and populations. Technological solutions vary by locations.

• There is minimal effort to develop technologies that address the need of poor regions. That is a challenge of public research organizations.

• Technological solutions should be accompanied by educational efforts and resource transfer to enable adoption.

• Efforts to introduce a technology should recognize constraints introduced by markets.

Induced Innovations• Innovations do not emerge in a vacuum.• They are a result of processes of innovation and

adoption.• They reflect economic and social conditions.• Innovations respond to scarcity and needs.• People put effort into solving problems and gaining

fame and fortune.• Societies introduce institutions to award

innovations:– Prizes– Patents and exclusive licenses– Trade secrets

More Induced Innovations• Innovations respond to needs and economic

conditions. Inventors, investors, and researchers put effort into solving burning problems, and that leads to innovations.– Labor shortages led to mechanized equipment.– Drought conditions led to improved irrigation.– Energy crises led to higher efficiency cars.– Farmers’ cooperatives were established during periods of

excessive low farm prices.• Environmental regulations trigger cleaner

technologies.– A tax on carbon will lead to improved stoves and power

plants.

The Innovation Process– An innovation starts as a concept that is refined

and developed before application.• Innovations may be inspired by reality. The

innovation process, which leads to useful technology, requires: – Research– Development (up-scaling, testing)– Production – Marketing– Use

• Experience with a product results in feedback and leads to improved innovations.

Adoption and Diffusion• The use of new technologies spreads gradually. • There is a significant time lag between the time a new

innovation is introduced and when it becomes widely used by producers or consumers.

• Diffusion is the aggregate process of product penetration. – It is measured by the percentage of potential users who

actually adopt a technology. • Diffusion curves measure aggregate adoption as a

function of time. They tend to be S-shaped.• Adoption is a decision by a specific individual to use a

technology. Diffusion is aggregate adoption.

The S-Shaped Diffusion Curve

Stages of Diffusion

• We distinguish among: – Early adopters: More educated, innovative

individuals who gain from technology.– Followers: The majority of adopters who see its

success and want to join in.– Laggards: Less-advanced individuals who either do

not adopt or adopt very late and may lose because of the technology.

Adoption as Imitation

• Some explain the S-shaped behavior as the outcome of imitation.

• Contact among individuals is the driving force of diffusion.

• Profitability of the new technology, ease of use, and quality of technical support are factors that can enhance diffusion.

• VCRs, wireless communication, Bt cotton, and Viagra were technologies with a fast rate of diffusion, while personal computers and IPM had slower adoption rates.

Threshold Model• The factors behind diffusion:

– Heterogeneity of potential adopters.– The individual decision process aimed at improving well-

being.– Dynamic forces that make technology more attractive.

• Source of heterogeneity (size, location, land quality, and human capital).

• Decision criteria (profitability, well-being, risk minimization).• Dynamic processes that drive adoption (learning by doing,

learning by using, network benefits).

Application : Threshold Approach

• Mechanical innovations: Tractors and cars are adopted by larger farms and richer families.

• In the case of a tractor,L = size of farma = saving per acreP = cost of tractor

Adopt if P < aLL = P/a critical size.

Critical size declines because P declines. As a result of learning by doing, a increases as a result of learning by using.

Adoption -threshold model

NuOf firms

size

Threshold first period

Threshold second period

Threshold third period

Adopters firms that are larger than the threshold

Other Examples• Water-conserving technologies (sprinklers) increase

water-use efficiency if:– With traditional technology, 50% of applied water is actually consumed.– 75% is consumed with sprinklers.– It results in higher yield and water saving.

• Technology adoption occurs:– In sandy soils and hills where the traditional technology is especially

inefficient.– Locations where the price of water is high.– With high-value crops.

• Green Revolution technologies are high-yield varieties that require complementary inputs (fertilizers and sometimes water). They are adopted when:– They have high yield and cost effects.– Farmers have access to credit.

Adoption and Risk• Impacts of technologies are unknown. Risk considerations

slow adoption.• One approach in assessing a technology:

– Maximize Expected benefits- risk • where is a coefficient of risk aversion.• Risk may be measured by a variance of profit.

• Policies that reduce risk include– insurance (crop insurance enhances adoption)– Diversification.

• An alternative approach: Select the technology with the highest benefit given that it yields minimum required benefits at the worst case scenario. This approach aims to assure sufficient resource during drought.

• Good inventories, banking systems, and asset accumulation possibilities reduce the need for protection against risks.

Adoption, Credit, Location, & Education

• Lack of credit and high cost of credit are major impediments for adoption.

• Poorer consumers and farmers may be more constrained by risk and credit constraints.

• Adoption may be slower at far away locations because of less access to information and sources of technology, higher cost of inputs. In some cases, however, early adopters are at distance locations(if technology reduces transportation costs).

• Adoption requires a high learning cost -more educated individuals tend to be early adopters. When the technology is simple,sometimes less sophisticated individuals adopt first.

Adoption and Policy• The government may enhance adoption through

positive incentives such as:– Price support of products produced with technologies.– Extension and education.– Credit subsidies.– Insurance schemes.– Cost-sharing arrangements.

• Negative incentives– Regulation against existing technologies (pesticide regulation enhances

biotechnology).– Higher cost of inputs used intensively with existing technologies (water

price hikes).• Key elements of environmental policy are incentives to

– Induce innovation of greener products.– Induce adoption of cleaner products.

Timing of Adoption

• Sometimes it is worthwhile to wait and see and not adopt immediately when benefits of technology exceed costs.

• Cost of technology may decline over time. You should wait if the reduction in technology cost> than the cost of waiting.

• When a technology has uncertain irreversible outcomes- waiting to learn more is prudent.

• Waiting prevent the opportunity of learning and improving a technology- the gains from waiting should be compared to the costs.

Government & adoption• Governments and Ngo’s are promoting and encouraging adoption of

technologies• Government is using incentives, initiate advertisement and promotional

campaigns.• Extension is an institution used for education and support of diffusion

processes. – Extension should complement private sector marketing of new

technology -not replace it. – In some cases extension’s clientele are mostly technology providers-

not users– Extension role is to provide balanced assessments of new

technologies not advocate them.– Extension role is adaptation of technology– Extension may initiate and implement institutional innovations

•

Marketing and Developing Nations

• Marketing provides information and thus generate value

• Like anything else it can be abused-regulation and education should reduce abuse.

• But it may be abused- rules for truth in advertisement and consumers’ advocates are needed to contain dishonest advertisement

• Key for honestly-stable private sector-– Fly by night’ ers have incentives to lie & take the

money and run. – Stable firms are worried from loss of reputation

• Buyers should be educated to be aware- they are the ultimate decision makers

Adoption and MarketingMarketing Tool Main Application Adoption Stage

Advertisements• Provide new information regarding

prices, availabilit y, location, etc.• Form sensual attitude, goodwill .

• Awareness (stage 1)

Demonstrations or trade shows

• Enable consumers to try the productbefore purchasing, and thus reducepre-purchasing risks.

• Trade shows provide opportunity forside-by-side demonstrations andcomparisons.

• Trade shows facil itate interactionbetween sellers and buyers, andbetween users and potentialadopters.

• Information search andevaluating alternatives(stages 2 and 3)

• Trade shows may beused for feedback(stage 5)

Money-backguarantees

• Provide consumers with a returnoption and, therefore, reduceperformance and fit uncertainties.

• Purchasing decision (stage 4)

Warranties

• Provide consumers with guaranteesin the event of mechanical failure,thereby reducing reliabilit y anddurabilit y uncertainties.

• Purchasing decision (stage 4)

Marketing Tool Main Application Adoption Stage Renting andleasing

• Provide lterntive to purchsing.Allows smller frm ers to use, nduncertin frm ers to test, thetechnology.

• Alterntive topurchsing decision(stge 4)

Providing credit • Reduces trnsctions costs ndfinncil constrints to purchsing.

• Purchsing decision (stge 4)

Producttrining

• Increse the efficiency of use ndconsumer stisfction; reduceprobbility of misuse.

• Increse consumer commitment to prticulr brnd.

• Evluting lterntives(stge 3)

Salespeople• Fit product offer and selling

strategy to consumer needs.• Build long-term relationship

(consumer-oriented selling).• Negotiate, bargain and pressure to

buy (hard sell).

• From productawareness through tothe purchasing decisionand follow-up (stages 1through 5)

Source: Heiman, McWilliams, and Zilberman (2000)

The end

Alternative Explanation of Adoption

• One approach views adoption as a process of imitation.

• Alternatively, adoption is an economic choice that depends on information about technologies; but cost and benefits determine the final outcome. -Adoption is influenced by provision of better

information, improved pricing, and financial terms of investment.

-Adoption of some technologies have network externality benefits.

Factors that Determine Adoption• Risk. The less uncertain buyers are about the

new technology, they are more likely to buy it. Therefore, demonstrations and guarantees are important.

• Location. A new technology tends to spread near commercial centers, and transportation cost reduces gain from technologies.

• Education.– Some of the technologies require extra knowledge and

adoption cost is less for more educated people. • Size and income.

– Some technologies have an increasing return to scale.Higher income individuals may be less risk averse.

The S-Shaped Diffusion Curve

Policy and Technology• Investment in public research and appropriate

incentives and regulation can lead to a greener world.• Adoption can be enhanced by effective extension,

subsidization of new technologies, taxing of input used with traditional technology, and credit policies.

• Size of population is only one item that determines environmental quality. Carbon taxing, public budgets of research and extension, IPR policies and their enforcement, and credit markets all determine the extent in which environmental issues are addressed.

• Having an effective private sector accelerates diffusion.