| Abstract: | In this paper, we review the physical characteristics of agricultural non point pollution and discuss the implications for setting appropriate pollution control objectives and designing incentive-based pollution control policies. First, we discuss that policy objectives must be designed carefully to ensure positive economic net benefits can be expected from pollution control. Next, we review several classes of incentives and recommend the use of design-based incentives (i.e., incentives based on variable input use, management practices, and land use) for controlling non point pollution. Cost-effectiveness requires that incentives elicit three types of responses from farmers: (1) use variable inputs at appropriate levels, (2) adopt appropriate management practices, and (3) make appropriate land use decisions at the extensive margin of production. If a set of incentives fails to induce the correct responses, the resulting runoff levels and hence ambient pollution levels and damages will be too large relative to policy goals. A review of existing programs suggests that greater program coordination and improved targeting of incentives are needed for further water quality improvements. Alternatively, properly designed market-based systems may be effective alternatives. These systems would reduce overall pollution control costs by allowing markets to allocate point source and non point source control costs more efficiently. |
