I am optimistic about this sort of idea, but I agree that it’s important to pay close attention to perverse incentives. For what it’s worth, the paper referenced in the post says the following regarding increased quantity concerns in the imagined animal well-being units (AWBUs) market:
“As can be seen from Table 2, a producer has three options to increase the number of AWBUs produced—it can add more animals, increase well-being, or avoid discount factors. The incentive for all farms to improve animal well being is straightforward. The higher the price of AWBUs, the greater the incentive to improve animal care. It seems unlikely, however, that a farm would face much pressure to add more animals simply to increase the number of AWBUs produced unless there was a corresponding change in demand for meat, milk, or eggs. Moreover, a producer only faces positive incentives to add more animals if conditions on the farm are such that NAWBS were to able to established at a high level. And isn’t this exactly what animal advocates desire? Indeed, if it became more profitable to produce animals on farms by providing conditions that delivered high levels of animal well-being (which would increase production on such farms), there would likely be a corresponding decrease in the level of production on farms with low levels of animal well being. Thus, the anticipated effects of a market for AWBUs are:
The average level of animal well-being across all farms, as defined by the average NAWBS, will increase;
There will be a slight increase in the number of animals produced;
There will be a redistribution of where animas were produced; more animals will begin to be produced on farms with higher NAWBS; and
Each of the above affects will be accentuated as the price of AWBUs rises.”
There are a few typos in that section that I left in (“such that NAWBS were to able to established,” “animas,” and “affects,” presumably intended to be “such that NAWBS were able to be established,” “animals,” and “effects.” I’m not sure why there are so many small errors, in addition to at least one other earlier in the paper.
The claims seem plausible to me, but far from obviously true. A lot seems to be resting on “Indeed, if it became more profitable to produce animals on farms by providing conditions that delivered high levels of animal well-being (which would increase production on such farms), there would likely be a corresponding decrease in the level of production on farms with low levels of animal well being.” I think it’s possible that some producers of cheap products cannot easily upgrade facilities to get paid for the credits (which would likely increase high-welfare production less than or equal to the corresponding decrease in low-welfare production), and they may not decrease production 1:1 even if their low-welfare products lose value in the market (I think empirical studies on elasticity in these markets generally indicate this). They may continue to produce, for example, if marginal revenue covers variable costs and some, but not all, fixed costs.
How positive the credits system ends up being depends on the actual changes in the number of animals being produced at different welfare levels. If even low-cost producers respond by implementing relatively cheap but highly welfare-improving measures, things will go swimmingly. If there ends up being more separation between producers, things could get messy. I think a lot may depend on the specific market—how similar production is across borders, supply elasticities, and what the lowest-cost changes available are.
I am optimistic about this sort of idea, but I agree that it’s important to pay close attention to perverse incentives. For what it’s worth, the paper referenced in the post says the following regarding increased quantity concerns in the imagined animal well-being units (AWBUs) market:
“As can be seen from Table 2, a producer has three options to increase the number of AWBUs produced—it can add more animals, increase well-being, or avoid discount factors. The incentive for all farms to improve animal well being is straightforward. The higher the price of AWBUs, the greater the incentive to improve animal care. It seems unlikely, however, that a farm would face much pressure to add more animals simply to increase the number of AWBUs produced unless there was a corresponding change in demand for meat, milk, or eggs. Moreover, a producer only faces positive incentives to add more animals if conditions on the farm are such that NAWBS were to able to established at a high level. And isn’t this exactly what animal advocates desire? Indeed, if it became more profitable to produce animals on farms by providing conditions that delivered high levels of animal well-being (which would increase production on such farms), there would likely be a corresponding decrease in the level of production on farms with low levels of animal well being. Thus, the anticipated effects of a market for AWBUs are:
The average level of animal well-being across all farms, as defined by the average NAWBS, will increase;
There will be a slight increase in the number of animals produced;
There will be a redistribution of where animas were produced; more animals will begin to be produced on farms with higher NAWBS; and
Each of the above affects will be accentuated as the price of AWBUs rises.”
There are a few typos in that section that I left in (“such that NAWBS were to able to established,” “animas,” and “affects,” presumably intended to be “such that NAWBS were able to be established,” “animals,” and “effects.” I’m not sure why there are so many small errors, in addition to at least one other earlier in the paper.
The claims seem plausible to me, but far from obviously true. A lot seems to be resting on “Indeed, if it became more profitable to produce animals on farms by providing conditions that delivered high levels of animal well-being (which would increase production on such farms), there would likely be a corresponding decrease in the level of production on farms with low levels of animal well being.” I think it’s possible that some producers of cheap products cannot easily upgrade facilities to get paid for the credits (which would likely increase high-welfare production less than or equal to the corresponding decrease in low-welfare production), and they may not decrease production 1:1 even if their low-welfare products lose value in the market (I think empirical studies on elasticity in these markets generally indicate this). They may continue to produce, for example, if marginal revenue covers variable costs and some, but not all, fixed costs.
How positive the credits system ends up being depends on the actual changes in the number of animals being produced at different welfare levels. If even low-cost producers respond by implementing relatively cheap but highly welfare-improving measures, things will go swimmingly. If there ends up being more separation between producers, things could get messy. I think a lot may depend on the specific market—how similar production is across borders, supply elasticities, and what the lowest-cost changes available are.