WEAI/AERE 2009 - Individual Paper Abstract
Title: A Monopolistic Competition Economic Model of the Horticultural Industry with a Risk of Harmful Plant Invasion
Author(s): Edward Barbier (University of Wyoming), Johnson Gwatipedza, Duncan KNOWLER, Sarah Reichard, School of Resource and Environmental Management, Simon Fraser University, Burnaby, BC, V5A 1S6, Canada, djk@sfu.ca, (778)782-3421 (picture credit: student of Duncan Knowler)
Abstract: The risk of plant invasion associated with commercial nursery operations means that the "privately" optimal number of nurseries established will diverge from the "socially" optimal number that accounts for this risk. We develop a monopolistic competition model of the horticultural industry and estimate the resulting profit function with US and Canadian industry data. Combining the results with a hazard analysis of the ecological characteristics of exotic plants previously introduced in North America, we explore optimal tax simulations for internalizing the risk and costs of a potential plant invasion. The tax is highly sensitive to the share of the exotic plant sales in final profits. If the share is large, then the resulting annual fee to internalize the cost and risk from a potential plant invasion will be high, discouraging the expansion of the nursery industry. However, the annual revenues could fund efforts to mitigate the damages resulting from any accidental plant invasion.