Policy Objectives and Economic Incentives for Controlling Agricultural Sources of Nonpoint Pollution

Richard D. Horan, Marc O. Ribaudo

Elsewhere No. (0007), October 1999

Agriculture nonpoint source pollution is an important source of water quality impairment in the United States. Nonpoint source pollution has some important physical characteristics that have implications for setting appropriate pollution control objectives and designing incentive-based pollution control policies. Design-based incentives provide a better opportunity for controlling nonpoint pollution than do performance-based incentives. For design-based incentives to be cost-effective, the incentives must induce producers to use variable inputs at appropriate levels, to adopt appropriate management practices, and to make appropriate land use decisions at the extensive margin of production. A review of existing programs suggests that greater program coordination and improved targeting of incentives are needed for further water quality improvements.

Keywords: Water quality, nonpoint sources, agriculture, pollution control, economic incentives, performance-based incentives, cost-effectiveness, targeting, Economic Research Service, ERS, USDA, U.S. Department of Agriculture

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Updated date: October 1999