| The California rice industry is currently implementing a ten-year, state-mandated phasedown of rice straw burning. This dissertation provides a theoretical and empirical analysis of the agricultural burn credit market. Growers receive burn credits for a specified share of their planted rice acres, which they may either use or sell to other growers. This dissertation research developed the theory, data, empirical model and parameter estimates to calculate cost savings the burn credit market provides to the California rice industry.;The theoretical model analyzes gains from trade of emission permits. It also considers burn credit trading under conditions of administrative uncertainty. A grower may not burn a given field until he receives permission from his local air district to burn on a specific day. Permission depends on stochastic weather patterns and air quality conditions. The model further examines the impact of field-level characteristics, including soil texture, water cost and disease incidence on growers trading decisions and burn-day uncertainty. The probability of being allowed to burn is positively correlated with the market price of burn credits. The model also predicts that uncertainty only affects the amount of credits traded if regional variation in field characteristics causes congestion on the burning queue in some air districts. The effect of tightening burn restrictions on aggregate cost savings is an empirical question to be answered in this analysis.;To study the market empirically, data were collected by a mail survey from 176 rice farms encompassing 315 fields in the Valley. Information on disposal practices, disposal costs, planting practices and field-level characteristics were elicited for 1995 through 1997. Cost savings were determined by comparing aggregate net disposal costs under trading and no-trading scenarios.;The probability of burning a field is estimated with a random effects probit estimator, using survey data and information on spatial patterns of grower density and fall precipitation. Results suggest that burning uncertainty reduces cost savings by approximately 15 percent annually. |
