Grad Spotlight: Natalie Loduca

Natalie is a first-year student in the Agricultural, Food, and Resource Economics (AFRE) Ph.D. program.

Natalie Loduca, AFRE Ph.D. Student

You were just awarded the 2021 Purdue Agricultural Economics’ Outstanding Thesis Award for your thesis, titled, “How Scale and Scope of Ecosystem Markets Impact Permit Trading: Evidence from Partial Equilibrium Modeling in the Chesapeake Bay Watershed.” How did it feel to receive this news? What does this award mean to you?

I was very surprised and honored to be presented with this award. I thought there was something strange going on when my previous graduate advisor, Dr. Nicole Widmar, asked that I meet her in a Zoom meeting under the pretense of “verbally confirming some aspects of my thesis to close out the file.” It turns out she had me enter the departmental faculty meeting to surprise me with the announcement.

This award means a great deal to me because this is my first research project. I was inspired to pursue this research based on a class I took with Dr. Thomas Hertel, and my advisor, Dr. Reeling, was supportive of the idea. The fact that I was able to take a research idea and follow it through to not only complete my thesis, but to win this award, is incredible.

How did you end up here? Can you tell me about any defining moments throughout your life that guided you toward wanting to pursue a career in agriculture?

I grew up in the Central Valley of California, and my family owns a vegetable transplant business, so I have always understood the importance of agriculture. While pursuing my undergraduate degree in Managerial Economics at UC Davis, I had the opportunity to take natural resource and environmental economics courses. These courses were my first introduction to the intricacies of the field, and I was intrigued by the multi-faceted problems relating to natural resource allocation and environmental quality issues. After graduating from UC Davis, I interned in Ecuador for the Provincial Government of Napo in the Department of Irrigation and Drainage. This experience solidified my interest in environmental and natural resource economics. I began my graduate studies at Purdue shortly thereafter and am excited to continue my studies with MSU AFRE.

What, in particular, drew you to MSU AFRE for your graduate studies?

As a land grant university, Michigan State University understands the importance of the acquisition and dissemination of cutting-edge ideas for practical use by external stakeholders. By being a Ph.D. student in AFRE, I will gain priceless knowledge and tools that will empower me to contribute to the natural resource economics field through my core classes, major field coursework, and research. 

I was also particularly interested in working with Dr. Scott Swinton because of his interest in interdisciplinary projects and experience in this field. I spoke with him about his work through the Kellogg Biological Station when I was a prospective student and was interested in the environmentally friendly farming practices and agricultural outreach. He is a very supportive mentor, and I have already learned so much from working with him.

Are you continuing to do similar research in your AFRE Ph.D. program, or are you onto something new and different now?

My M.S. thesis research utilizes a partial equilibrium model of agricultural production, to explore how the scale and scope of environmental quality markets influence farm-level production decisions and market performance. I simulate how permit trading affects producers’ input use decisions, and ultimately pollution emissions, by modifying the supply nest structure of the model to include water quality permits as an additional output from agricultural production. I also include carbon and habitat permits due to the co-benefits of the included best management practices.

My work with Dr. Swinton will include analyzing the behavior of agricultural producers but will focus on perceptions of future climate change conditions, the impact these conditions will have on the perceived probability distribution of crop yield, and how these beliefs affect investment decisions relating to climate change and yield loss mitigation practices. We plan to conduct interviews to analyze risk preferences and identify key factors that influence these investment decisions. I hope to incorporate potential feedbacks from crop yield loss mitigation practices to changes in local ecological conditions by including biophysical modeling to understand the potential environmental and economic repercussions.

Why is your research important? What are the possible real-world applications?

One of the main reasons why I enjoy agricultural economics is the applications of the research to real-world problems. I am interested in the crossover of agricultural production decisions and ecosystem services. By understanding the benefits of best management practices and the behaviors of producers, we can better align incentives to address environmental issues.

With my M.S. thesis work, the focus was on ecosystem permits, primarily nitrogen permits for water quality. My current work focuses on perceptions of, and responses to, crop yield loss due to climate change. Given that droughts could be an issue in the Midwest in the future, there may be the opportunity to analyze changes in demand for groundwater related to irrigation adoption. 

Are your methods generally accepted? Are they unusual or new?

I use the Simplified International Model of agricultural Prices, Land use and the Environment (SIMPLE), a large-scale partial equilibrium model, to simulate the impact of a hypothetical water quality market in the Chesapeake Bay Watershed. SIMPLE was developed by Dr. Tom Hertel at Purdue to focus in on the agricultural sector in order to understand market feedbacks and unintentional policy outcomes. The benefit of using SIMPLE is the ability to assess the effects of market design choices (e.g., price effects, additionality concerns, and other unintended policy effects) across large spatial scales. 

Partial equilibrium and general equilibrium are accepted methods and have become more precise as geospatial data becomes more widely available at finer resolutions. I believe this method has not been applied to ecosystem permit trading before. There is a lot of potential in combining partial or general equilibrium models with biophysical models to understand environmental policy outcomes.

What are some concrete takeaways that can be shared with readers?

I extend SIMPLE to quantify co-benefits of water quality best management practices and simulate the effect of allowing conservationist producers to “stack” permits (i.e., to supply permits to different markets for each different co-benefit producers generate). I explore the consequences of regional scale stacking policies on additionality, or the principle that additional payments for conservation activities should yield additional social benefits.

I find that, overall, permit production increases with the scale and scope of the markets. At the smallest market size—which allows trading only within 8-digit hydrological unit code watersheds—unintended policy implications arise as the stacked markets cause one conservation practice to crowd out the other. Meanwhile, the largest market—which allows trading across the Chesapeake Bay Watershed—produces nitrogen permits more efficiently, which may lead to less of the secondary permits in comparison to other market configurations. The results of this study support the Environmental Protection Agency’s urging of the expansion of the scale and scope of ecosystem markets.

What is your favorite aspect of your research?

I like the problem-solving nature of environmental and natural resource economics. There are multiple stakeholders to consider and many angles of the problem to study and consider in your research. I like working with interdisciplinary teams to understand the complexities of the feedbacks between ecological conditions and agricultural practices. As I mentioned previously, the applied aspect of the research is one of the reasons that I enjoy agricultural economics.

What’s next for you and your research?

For my thesis project, I am working with my coauthors on database updates and modeling adjustments to refine the project and prepare the paper for publication. These modifications will bring a lot of benefits to the project. I am hoping to have the paper submitted to a journal by the end of this year.

In terms of my work with Dr. Swinton, we are still in the early stages of the project. I have been immersing myself in the literature and theoretical foundations of risk preference analysis. Next, we will begin designing a data collection plan. I am excited to conduct a survey for the first time.

What do you like to do when you aren’t working on research?

When I am not working on research or classwork, I enjoy reading and taking care of my houseplants. I am looking forward to warmer weather, so I can start a little vegetable garden on my balcony and go for walks in Patriarche Park.

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