Transaction Costs of Policies to Reduce Agricultural Phosphorous Pollution in the Minnesota River.(Statistical Data Included)

I. INTRODUCTION

Nonpoint source pollution control is a difficult problem in theory and in practice. The inability to observe emissions at reasonable cost means that emission taxes and standards are difficult if not impossible to implement. In the case of agricultural nonpoint source (NPS) pollution, we observe programs or policies based on education, cost sharing/technical assistance, land retirement, and conservation compliance while economic theory indicates that incentives such as input taxes are generally more efficient. Yet this conclusion is based on cost estimates that exclude transaction costs.

Inclusion of transaction costs in policy evaluation is important for three reasons:

1. transaction costs may affect which policy alternative attains an environmental goal at least cost;

2. they will reduce the amount of abatement that is optimal from the point of view of society; and

3. their inclusion may lead to the design of policies and institutional arrangements which lower transaction costs.

Transaction costs (including administrative costs) might be particularly high for nonpoint source pollution due to the high cost of monitoring emissions and the large number of polluters. These higher costs may be one reason why point sources (PS) have been emphasized in water quality legislation.