Green Payment Programs for Nonpoint Source Pollution Control: How Important Is Targeting for Cost-Effectiveness?

Baerenklau, Kenneth A.
December 2002
Journal of Agricultural & Resource Economics;2002, Vol. 27 Issue 2, p406
Academic Journal
Mechanism design theory is used to examine the case of a cost-minimizing regulator who uses input-reduction subsidies to meet an exogenously imposed ambient standard for nonpoint source pollution. A general result claimed for a welfare-maximizing regulator is clarified to show that an optimal contract scheme may involve a pooling equilibrium. Numerical results suggest the ability to directly target contracts reduces costs significantly for the regulator. But in the absence of this ability, indirect targeting reduces costs only slightly.


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