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Reversing the Property Rights: Practice-Based Approaches for Controlling Agricultural Nonpoint-Source Water Pollution When Emissions Aggregate Nonlinearly

Author

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  • Sergey Rabotyagov
  • Adriana Valcu-Lisman
  • Catherine L. Kling
Abstract
Nonpoint-source pollution remains a troubling source of water quality problems despite decades of economics research on the matter. Among the chief difficulties for addressing the issue are the property rights assignments implicit in the current policy environment that favor agricultural nonpoint-source pollution, the unobservability of field-level emissions, and complex fate and transport relationships linking them to ambient water quality. Theoretical and practical considerations lead to the focus on observable abatement actions (conservation practices). Biophysical models are increasingly more capable of linking abatement actions to policy-relevant water quality outcomes. If costs of abatement actions are known, finding the least-cost mix of abatement actions is possible, while incorporating the nonlinearity of the pollution process. When costs are not known or information is incomplete, regulators can rely on flexible incentive-based programs, but the design of such programs is complicated by the complexities of emission aggregation. In this work, we focus on the regulator capable of focusing on nonpoint-source emitters. We address the design and performance of three practice-based approaches, ranging from the command-and-control approach mandating practices, to the more flexible performance standard approach where farmers are free to select the optimal mix of on-farm conservation practices, to a fully flexible approach where credits for conservation practices are freely tradable. We do so by utilizing the representation of the nonlinear emission aggregation (fate and transport) process (the Soil and Water Assessment Tool model), and consider cases ranging from the regulator having perfect information on the costs of conservation practices to no information at all. We show how workable programs utilizing the biophysical models and simulation-optimization approaches can be designed, and assess their performance relative to the efficient case. We find that flexible programs perform well both in terms of cost and water quality goals attainment. In particular, a trading program designed around an approximation of the nonlinear pollution process performs well, relative to first-best under no information on the cost of conservation practices.

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  • Sergey Rabotyagov & Adriana Valcu-Lisman & Catherine L. Kling, 2012. "Reversing the Property Rights: Practice-Based Approaches for Controlling Agricultural Nonpoint-Source Water Pollution When Emissions Aggregate Nonlinearly," Center for Agricultural and Rural Development (CARD) Publications 12-wp533, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    • Handle: RePEc:ias:cpaper:12-wp533
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    References listed on IDEAS

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    1. Kathleen Segerson (ed.), 2010. "The Economics of Pollution Control," Books, Edward Elgar Publishing, number 13260.
    2. Richard D. Horan & James S. Shortle, 2005. "When Two Wrongs Make a Right: Second-Best Point-Nonpoint Trading Ratios," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(2), pages 340-352.
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    10. JunJie Wu & Bruce A. Babcock, 1996. "Contract Design for the Purchase of Environmental Goods from Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(4), pages 935-945.
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    12. Rabotyagov, Sergey S. & Feng, Hongli, 2010. "Does permit trading minimize cost under an average pollution target?," ISU General Staff Papers 201011050700001809, Iowa State University, Department of Economics.
    13. Morgan, Cynthia L. & Coggins, Jay S. & Eidman, Vernon R., 2000. "Tradable Permits For Controlling Nitrates In Groundwater At The Farm Level: A Conceptual Model," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 32(2), pages 1-10, August.
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    Cited by:

    1. Liang Liu & Cong Feng & Hongwei Zhang & Xuehua Zhang, 2015. "Game Analysis and Simulation of the River Basin Sustainable Development Strategy Integrating Water Emission Trading," Sustainability, MDPI, vol. 7(5), pages 1-21, April.
    2. Hongxing Liu & Wendong Zhang & Elena Irwin & Jeffrey Kast & Noel Aloysius & Jay Martin & Margaret Kalcic, 2020. "Best Management Practices and Nutrient Reduction: An Integrated Economic-Hydrologic Model of the Western Lake Erie Basin," Land Economics, University of Wisconsin Press, vol. 96(4), pages 510-530.
    3. Meyer, Andrew G. & Raff, Zach, 2022. "Pass-through of water pollution regulation: Evidence from sewer utility bills and Wisconsin's phosphorus rule," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322444, Agricultural and Applied Economics Association.
    4. Konrad, Maria Theresia & Hansen, Line Block & Levin, Gregor & Blicher-Mathiesen, Gitte & Andersen, Hans Estrup & Martinsen, Louise & Hasler, Berit, 2022. "Targeted regulation of nitrogen loads: A national, cross-sectoral analysis," Ecological Economics, Elsevier, vol. 193(C).
    5. Zhang, Wei, 2015. "Costs of a Practice-Based Air Quality Regulation: Dairy Farms in the San Joaquin Valley," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205304, Agricultural and Applied Economics Association.
    6. Whittaker, Gerald & Färe, Rolf & Grosskopf, Shawna & Barnhart, Bradley & Bostian, Moriah & Mueller-Warrant, George & Griffith, Stephen, 2017. "Spatial targeting of agri-environmental policy using bilevel evolutionary optimization," Omega, Elsevier, vol. 66(PA), pages 15-27.
    7. Yanrong Lu & Chen Wang & Rongjin Yang & Meiying Sun & Le Zhang & Yuying Zhang & Xiuhong Li, 2023. "Research on the Progress of Agricultural Non-Point Source Pollution Management in China: A Review," Sustainability, MDPI, vol. 15(18), pages 1-14, September.
    8. Song Jiang & Shuang Qiu & Hong Zhou & Meilan Chen, 2019. "Can FinTech Development Curb Agricultural Nonpoint Source Pollution?," IJERPH, MDPI, vol. 16(22), pages 1-22, November.
    9. Dongmin Kong & Mengxu Xiong & Ni Qin, 2023. "Tax incentives and firm pollution," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(3), pages 784-813, June.
    10. Marin Skidmore & Tihitina Andarge & Jeremy Foltz, 2023. "Effectiveness of local regulations on nonpoint source pollution: Evidence from Wisconsin dairy farms," American Journal of Agricultural Economics, John Wiley & Sons, vol. 105(5), pages 1333-1364, October.
    11. Catherine L. Kling & Yiannis Panagopoulos & Adriana Valcu-Lisman & Philip W. Gassman & Sergey Rabotyagov & Todd Campbell & Mike White & Jeffrey G. Arnold & Raghavan Srinivasan & Manoj Jha & Jeff Richa, 2014. "Land Use Model Integrating Agriculture and the Environment (LUMINATE): Linkages between Agricultural Land Use, Local Water Quality and Hypoxic Concerns in the Gulf of Mexico Basin," Center for Agricultural and Rural Development (CARD) Publications 14-wp546, Center for Agricultural and Rural Development (CARD) at Iowa State University.

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