Control of Nonpoint Source Pollution Through Voluntary Incentive-based Policies: An Application to Nitrate Contamination in New York Agricultural and Resource

A voluntary program is developed to achieve environmental goals through the self-interested choices of farmers under environmental risk and asymmetric information. Farmers behave to maximize expected net returns, and environmental quality standards are formulated through chance constraints. Because the government may not know each farmer’s soil type, policy options must be self-selecting. The model is applied empirically to nitrate leaching and runoff from corn production in three New York regions. Asymmetric information between producers and the government would impose additional cost burdens on society, but these costs are modest in the context of other farm programs. Agricultural nonpoint source pollution now ac-counts for a large share of water quality problems in the United States [Ribaudo et al. 1999), and remains one of the most difficult policy challenges. Uniform policies, such as taxes or limits on pol-luting inputs, have been shown to be inefficient because farms are so heterogeneous (Braden et al. 199 1; Carpenter et al. 1998). However, standard cost-efficient remedies such as discharge fees or tradable permits are impossible since emissions cannot be observed. Because the benefits and costs of reducing farm pollution vary over space, an optimal policy would require adjustments in production to differ across farms. Yet, by definition, the benefits of control-ling nonpoint pollution at each site may never be known and policies must concentrate on reducin