EFFECT OF WATER QUALITY STANDARDS ON FARM INCOME,RISK, AND NPS POLLUTION1

ABSTRACT: Enforceable standards play a crucial role in the design and implementation of most water quality policies. The impacts of these standards on farm income and nonpoint source (NPS) pollution can provide valuable information to develop economic policies that can improve water quality with minimal loss in income and minimal risk. This study uses an integration of nonlinear programming and a simulation model to assess the impacts of enforceable standards at technology and farm boundary levels. The results indicate that the type of pollutant regulated, enforcement type, and the level of standard had a significant impact on farm income and water quality. Choice of farm boundary standards over technology standards is dependent on the impact of the policy on other NPS pollutants, in addition to the reduction of nitrate and phosphorus pollutants. Enforcing farm boundary standards on nitrates had desirable effects on subsurface and percolate nitrogen and variance in income. Technology standards were uncertain in their effects because of the restriction on the choice of technologies available to farmers. A comparative policy analysis considering incentives, multiple impacts, transaction costs of implementation, and regional consideration is important to an effective policy design.