Micro-level econometric and water-quality modeling: simulation of nutrient management policy effects

Large surface areas of lakes and streams are impaired by nutrient contributions from agricultural nonpoint sources. This research develops a fully integrated economic and water quality model of an actual watershed to assess alternative nutrient abatement polities in terms of their economic efficiency and water quality effects. The policies examined include fertilizer taxes, application rate caps, uniform reductions, and a cap-and-trade fertilizer application right trading scheme. A micro-econometric field scale model of nutrient application is estimated using USDA Agricultural Resource Management Survey (ARMS) data combined with prices and spatially detailed soil data. Estimation results are interfaced with the Soil and Water Assessment Tool (SWAT) to determine the changes in water quality that would result from each scenario. Results suggest that, given a fixed expenditure, the differences in water quality effects across policies are small. However, a uniformly-applied application cap can provide the largest improvement due to the spatial distribution of application patterns. Additionally, there is a great deal of variability in results at the sub-watershed level as compared to the watershed outlet