Digital Commons Network^™

Water Quality Trading In The Presence Of Abatement-Cost Sharing, Arthur J. Caplan

Applied Economics Faculty Publications

This paper examines how water quality trading interacts with nonpoint-source abatement-cost sharing (e.g., as currently practiced by the National Resource Conservation Service through its Environmental Quality Incentives Program [EQIP]) to promote the participation of nonpoint sources in a water quality market, participation that has thus far been noticeably lacking nationwide. As such, an idealized version of water quality trading is envisioned, where water quality trading and nonpoint cost sharing are treated as complementary policy instruments rather than substitutes. Toward this end, the subgame-perfect equilibrium concept is used to model a “multilateral contracting” relationship between the regulatory authority and nonpoint sources …