Cost sharing to induce efficient techniques of abating wastewater pollution

This paper analyzes existing cost-sharing rules for wastewater pollution grants administered by the Environmental Protection Agency under the 1972 Amendments to the Federal Water Pollution Control Act. It identifies and measures biases in the existing cost-sharing rules that encourage nonfederal interests to select particular techniques (e.g., capital-intensive techniques) over others even when the selected techniques are not the least costly to the nation. The paper develops theoretically a cost-sharing condition—that the same percentage cost share be applied to all abatement techniques—that would eliminate the cost-sharing bias. Alternative cost-sharing approaches are evaluated in terms of their biasing effects and their absolute dollar costs for federal and nonfederal project participants.