James S. Shortle

The Relative Efficiency of Agricultural Source Water Pollution Control Policies

This paper examines the relative expected efficiency of four general strategies which have been proposed for achieving agricultural nonpoint pollution abatement. Emphasis is placed on the implications of differential information about the costs of changes in farm management practices, the impracticality of accurate direct monitoring, and the stochastic nature of nonpoint pollution. The possibility of using hydrological models to reduce, but not eliminate, the uncertainty about the magnitude of nonpoint loadings is incorporated into the analysis. The principal result is that appropriately specified management practice incentives should generally outperform estimated runoff standards, estimated runoff incentives, and management practice standards for reducing agricultural nonpoint pollution.

The Economics of Nonpoint Pollution Control

A timely literature on the design of economic incentives for nonpoint pollution control has been emerging. We describe the nonpoint pollution control problem, some of the peculiar challenges it poses for policy design, and the policy-related contributions of the theoretical and empirical literature on the economics of nonpoint pollution. Copyright 2001 by Blackwell Publishers Ltd

Research Issues in Nonpoint Pollution Control

Research on nonpoint pollution control instruments has focused primarily on incentives applied either to production inputs that affect nonpoint pollution, or to ambient pollution concentrations. Both approaches may in theory yield an efficient solution. However, input-based incentives will generally have to be second-best to make implementation practical. Design issues include which inputs to monitor and the rates to apply to them. The limited research indicates that second-best, input-based incentives can be effective in adjusting input use in environmentally desirable ways. Alternatively, ambient-based incentives have theoretical appeal because efficient policy design appears to be less complex than for input-based incentives. These incentives have no track record nor close analogues that demonstrate potential effectiveness, however. Research on how households and firms might react in response to ambient-based incentives is needed before these instruments can be seriously considered.

Environmental policies for agricultural pollution control

Agriculture and water quality - the issues environmental instrumentsfor agriculture indirect approaches to water quality protection in agriculture estimating benefits and costs of pollution control policies - theoretical and methodological issues water quality issues and policies for agriculture in the US water quality issues and policies for agriculture in Western Europe decomposing the effects of trade on the environment. (Part contents).

When Two Wrongs Make a Right: Second-Best Point-Nonpoint Trading Ratios

Most research on point-nonpoint trading focuses on the choice of trading ratio (the rate point source controls trade for nonpoint controls), although the first-best ratio is jointly determined with the optimal number of permits. In practice, program managers often do not have control over the number of permits—only the trading ratio. The trading ratio in this case can only be second-best. We derive the second-best trading ratio and, using a numerical example of trading in the Susquehanna River Basin, we find the values are in line with current ratios, but for different reasons than those that are normally provided. Copyright 2005, Oxford University Press.

A Laboratory Experiment to Compare Two Market Institutions for Emissions Trading

We report results from an economic experiment where two markets institutions for controlling water pollution are compared. In the status quo institution, permit trades between point and nonpoint sources are subject to a trading ratio. In the alternative, nonpoint abatements are converted into permits with multiple attributes. The test bed captures important features of existing markets for water quality trading. First, pollution is stochastic, poorly observed and imperfectly controlled by nonpoints. Second, the market is characterized by oligopsony. The results indicate that the multi-attribute market generates a superior environmental outcome to the trading ratio market. Furthermore, the average cost of pollution control is lower in the multi-attribute market. Market power is found to be independent of the type of market institution, but sellers of permits learn to resist market power as they gain experience. This is at the cost of market efficiency since their resistance reduces the number of trades.

Parameter Uncertainty in CGE Modeling of the Environmental Impacts of Economic Policies

This study explores the role of parameter uncertainty in CGE modeling of the environmental impacts of macroeconomic and sectoral policies, using Costa Rica as a case for study. A CGE model is constructed which includes eight environmental indicators covering deforestation, pesticides, overfishing, hazardous wastes, inorganic wastes, organic wastes, greenhouse gases, and air pollution. The parameters are treated as random variables drawn from prespecified distributions. Evaluation of each policy option consists of a Monte Carlo experiment. The impacts of the policy options on the environmental indicators are relatively robust to different parameter values, in spite of the wide range of parameter values employed.

The Economics of Water Quality Trading

Textbook pollution permit trading markets are appealing due to simple market designs and their ability to solve allocation problems without firm-specific information. Neither of these features is true for water quality markets, which may explain why emerging programs in this area have with few exceptions not fulfilled the promise of trading. We review water quality trading programs, and examine market design by focusing on three tasks that must be addressed to cost-effectively achieve environmental targets: (i) defining the point and nonpoint commodities to be traded, (ii) defining rules governing exchanges of the commodities, and (iii) setting caps on the commodity supplies so as to achieve an environmental target. Our examination of the third task, the cap and its role in determining trading rules (e.g., trading ratios), is novel. We examine this task from both an ecological and an economic perspective, and obtain new insights about the challenges of designing water quality trading programs.

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.

Technology as an Agricultural Pollution Control Policy

In this paper we consider the market-level impacts of factor-augmenting innovations designed to reduce the use of fertilizers and pesticides, first within the context of a simple two-factor model, and then through a simulation model of the U.S. corn market. In both models, the impacts depend on the output demand elasticity and input substitution elasticities. The principal conclusion of the simulation analysis is that the potential for new techniques to reduce the use of agricultural chemicals is limited. Capital-augmenting innovations would actually raise fertilizer and pesticide usage. Land-augmenting innovations would also tend to increase pesticide usage.