ABSTRACT
This chapter describes a conceptual framework that can be used to analyze the interactions between agricultural and environmental policies and pollution. This framework integrates physical and economic models at a disaggregate level necessary to capture the heterogeneity of the physical environment and the economic behavior of farmers. The economic model is based on the optimal allocation of land and other inputs in production as functions of prices, policies, and the environmental characteristics of the land managed by the farmer. Most policies that affect the economic decisions of farmers thus affect decisions at both the extensive and intensive margins. Agricultural and environmental policies can be categorized according to their effects on the intensive and extensive margins. Agricultural policy has a well-documented impact on farmers’ production decisions, and those decisions may in turn affect the environment. Both agricultural production and environmental impacts depend on highly locationspecific environmental conditions.
