Firms may under- or over-invest in risk management from the social planner's perspective, resulting in a negative externality on other economic agents in the supply chain. This risk management externality is particularly relevant for food supply chains that constantly face exogenous shocks from varying sources and play a primary role in preventing major social losses from food insecurity. We build a theoretical model in the context of US agri-food supply chains, where intermediary firms choose the quantity of output and the investment in reducing operational risk. The model allows for flexible market structures and interdependence of risk investments among firms. We show that private firms invest in risk management less than the socially optimal level under perfect competition, but market power introduces competing risk management incentives and have critical implications for the social efficiency of policy interventions.
Nitrate pollution threatens human health and ecosystems in many regions of the world. Although scientists agree that nitrogen compounds from human activity, notably agriculture, enter the groundwater system, empirical estimates of the impacts of land use on nitrate concentrations in well water are still lacking. We provide evidence of such impacts by combining nitrate concentration measurements from about 6,000 groundwater wells with a data set of remotely sensed land uses for California over the period 2007–2023. Results show that a 10 percentage point increase in the share of land used to grow high-nitrogen crops within 500 meters of a well relative to undeveloped land is associated with a 12% increase in nitrate concentrations, while a 10 percentage point increase in the share of land used for low-intensity urban development is associated with a 10% increase. Local dairy cattle populations also meaningfully contribute to nitrate pollution. However, conditioning on initial nitrate measurements, we find limited evidence that human activity affects nitrate concentrations a decade later.
Nitrate contamination of drinking water is a widespread concern and threatens human health. The magnitude of the health consequences depends on individuals' ability to avoid exposure. This paper uses an event-study framework to uncover avoidance behavior and infant mortality outcomes following Safe Drinking Water Act nitrate violations. Using store-level scanner data, I estimate that consumers spend \$4.5 million annually on bottled water to avoid nitrate-contaminated drinking water. This protective behavior leads to 14 avoided infant deaths per year or \$160 million in monetized benefits. These results underscore the benefits of avoiding nitrate-contaminated drinking water exceed the costs incurred by consumers.
Adaptation to environmental change can carry negative externalities. We document one such case: Farmers in California respond to heat and drought by extracting more groundwater, harming access to drinking water for nearby residents. Using yearly variation we show that surface water scarcity and heat increase agricultural well construction, groundwater depletion, and domestic well failures, and that well construction accounts for a large share of the latter effects. In our setting, adaptation also exacerbates inequality. Effects on domestic well failures are concentrated in low-income and Latino communities. Climate damage estimates may be incomplete without accounting for the external costs of adaptation.
Food supply chain resilience has become a priority for policymakers in recent years. Prompted by several systemic disruptions and the increased likelihood of future shocks, significant attention and public financial investment have been devoted to preparing supply chains to be more able to absorb shocks and more nimbly respond in the future. Food and agricultural supply chains have been particularly scrutinized due to widespread shortages and food price inflation of key staples in recent years. Varied perspectives have emerged about the factors that contribute to the resiliency of food supply chains and the interventions that will be most effective. This article reviews the perspectives on food supply chain resilience generally. Furthermore, we attempt to synthesize the methodologies that have been used to study resilience and offer some guidance for economists studying the topic moving forward.
Recent extreme events and the disruptions they caused have made food supply chain resilience a key topic for researchers and policymakers. This paper provides input into these discussions by evaluating the efficiency and resilience properties of the leading policy proposals. We develop a conceptual model of a prototype agricultural supply chain, parameterize the model based on results from the empirical literature, and conduct simulations to assess the impacts on resilience and economic welfare of four key policy proposals; (i) intensified antitrust enforcement to improve market competition, (ii) subsidization of entry of additional processing capacity, (iii) prevention of price spikes through anti-price-gouging laws, and (iv) diversification of production and processing across multiple regions. Results show that some of the policies have potential to improve supply-chain resilience, but their impacts depend importantly on the existing market structure, and resilience gains often come at the cost of reduced efficiency and market surplus.
Even as organic products have become more widely available, most organic growers in the United States still participate in niche markets, with few buyers and sellers and few trades being executed at a given area or point in time, relative to conventional segments of the market. Despite an increase in both organic production and available information to support decision making, growers continue to face challenges related to the thinness of organic markets. This report examines organic dairy and beef markets, including major feed inputs, to assess the current competitive status of these markets. Specifically, in each market, this report considers factors fundamental to determining whether buyers and sellers can form long-term, mutually beneficial buyer/seller relationships that may limit thin market challenges that might otherwise arise.