Quick, Bring in the Farmers!

It sounds like farmers could save the world! Or, at the very least, help the world by reducing carbon emissions. According to The Wall Street Journal, there is a cornfield in Iowa that can bestow wisdom on how to solve market failures. In other words, the farm can help combat climate change. A farmer named Mitchell Hora uses regenerative growing practices, which, besides simply being more efficient at farming, carries a significant benefit: the growing practices eliminate the soil carbon released from burning fossil fuels. Yay for less carbon emissions! This is a positive production externality. Mr. Hora's production leads to a social marginal cost that is below the private marginal cost. In addition, the social optimal quantity is greater than the market equilibrium under a competitive market. Thus, Mr. Hora is underproducing. He needs to farm more (produce more) in order to achieve the optimal allocation of resources.

There may be a Coasian solution to this, which is mentioned in the article. A company called Indigo Ag Inc. is setting up a market for carbon credits. Companies that want to reduce their carbon footprint can go to the marketplace and pay farmers to do it for them. So can other parties, such as environmental interest groups. If these groups decide to pay Mr. Hora the marginal benefit (which is the distance between the SMC and PMC curves), Mr. Hora will produce at the socially optimal level without any government intervention, thus solving the market failure, and (hopefully) making the world a better place.

Yes...the government could pay Mr. Hora to produce more and we'd still get the same optimal allocation of resources (even though Coase would be disappointed). But I like the Coasian solution more. It just...makes me happy.