Economics and Environmental Markets: Lessons from Water-quality Trading

Water-quality trading is an area of active development in environmental markets. Unlike iconic national-scale air-emission trading programs, water-quality trading programs address local or regional water quality and are largely the result of innovations in water-pollution regulation by state or substate authorities rather than by national agencies. This article examines lessons from these innovations about the "real world" meaning of trading and its mechanisms, the economic merits of alternative institutional designs, utilization of economic research in program development, and research needed to improve the success of environmental markets for water quality

THE USE OF ESTIMATED POLLUTION FLOWS IN AGRICULTURAL POLLUTION CONTROL POLICY: IMPLICATIONS FOR ABATEMENT AND POLICY INSTRUMENTS

Flows of water pollutants from agricultural sources are, for all practical purposes, unobservable by direct monitoring. These flows can, however, be estimated using hydrological models. The analysis presented in this paper demonstrates that uncertainty on estimated flows is not neutral with respect to the optimal level and allocation of estimated abatement or with respect to the expected net benefits of alternative pollution control policy instruments. Policy implications are noted.Resource /Energy Economics and Policy,

Agricultural Nonpoint Source Pollution Control in Theory and Practice

The theory of efficient policy instruments for agricultural pollution control has been evolving. Some new developments suggest that policies using financial incentives to encourage desirable farming practices are superior to those focusing on runoff directly or restrictions on farming practices. However, the theoretical models used to derive such results make assumptions about conditions that may not hold. As a result, implementation of the findings of such models is not necessarily routine. This article attempts to summarize these studies and interpret their implications for agricultural nonpoint source pollution control for the Chesapeake Bay.Environmental Economics and Policy, Research Methods/ Statistical Methods, Resource /Energy Economics and Policy,

Coordination and Miss-Coordination in Market Entry Games with an Application to Congestion Externalities

Marketing,

THE POLITICAL ECONOMY OF WATER QUALITY PROTECTION FROM AGRICULTURAL CHEMICALS

Environmental Economics and Policy,

PROBABILISTIC COST EFFECTIVENESS IN AGRICULTURAL NONPOINT POLLUTION CONTROL

Conceptual weaknesses in the use of costs of average abatement as a measure of the cost effectiveness of agricultural nonpoint pollution control are examined. A probabilistic alternative is developed. The focus is on methods for evaluating whole-farm pollution control plans rather than individual practices. As a consequence, the analysis is presented in a chance-constrained activity analysis framework because activity procedures are a practical and well developed device for screening farm planes. Reliability of control is shown to be as important as reduction targets in designing farm plans for pollution control. Furthermore, broad-axe prescriptions of technology in the form of Best Management Practices may perform poorly with respect to cost effectiveness.Environmental Economics and Policy,

FOREWORD: Special Issue on Trade

International Relations/Trade,

USING DEA AND VEA TO EVALUATE QUALITY OF LIFE IN THE MID-ATLANTIC STATES

In this study we use data envelopment analysis (DEA), and an extension of DEA called value efficiency analysis (VEA), to explore the production of quality of life within counties in the mid-Atlantic region and the extent to which production frontiers and efficiency differ between rural and urban counties. These methods allow us to identify counties that are inefficient in their quality of life production, and to rank those counties according to their distance from a performance standard established by other observed counties (using DEA), or by a single unit designated as most preferred (using VEA) .International Development,

The Performance of Compliance Measures and Instruments for Nitrate Nonpoint Pollution Control Under Uncertainty and Alternative Agricultural Commodity Policy Regimes

Following Weitzman (1974), there is ample theoretical literature indicating that choice of pollution control instruments under conditions of uncertainty will affect the expected net benefits that can be realized from environmental protection. However, there is little empirical research on the ex ante efficiency of alternative instruments for controlling water, or other types of pollution, under uncertainty about costs and benefits. Using a simulation model that incorporates various sources of uncertainty, the ex ante efficiency of price and quantity controls applied to two alternative policy targets, fertilizer application rates and estimated excess nitrogen applications, are examined under varying assumptions about agricultural income support policies. Results indicate price instruments outperform quantity instruments. A tax on excess nitrogen substantially outperforms a fertilizer tax in the scenario with support programs, while the ranking is reversed in the scenario without support programs.Environmental Economics and Policy,

Transactions Costs and Point-Nonpoint Source Water Pollution Trading

The implications of transactions costs for the performance of water pollution trading involving point and nonpoint sources are examined. The analysis focuses on the impacts of transaction costs on different classes of trading partners and its consequence on the trading equilibrium. The model of point-nonpoint water pollution trading in the context of the total maximum daily loads explicitly incorporates transactions costs for both buying and selling exchanges of nonpoint source and point source permits. Transactions costs unarguably reduce the optimal level of trades in both types of permits compared to the costless trade case.Environmental Economics and Policy,