A DYNAMIC ANALYSIS OF THE IMPACT OF WATER QUALITY POLICIES ON IRRIGATION INVESTMENT AND CROP CHOICE DECISIONS

A dynamic model is developed to analyze farmers' irrigation investment and crop choice decisions under alternative water quality protection policies. The model is applied to an empirical example in the Oklahoma High Plains. The choices of crops and irrigation systems and the resulting levels of irrigation, income, and nitrogen runoff and percolation are simulated over a ten-year period. An effluent tax on nitrogen runoff and percolation is shown to be effective in reducing nitrate pollution. The efficacy of cost sharing in adopting modern irrigation technologies and restrictions on irrigation water use depends on soil type. A tax on nitrogen use is shown to be the least effective policy