AGRICULTURAL POLLUTION - ECONOMICS OF COORDINATION

Institutional design is the major obstacle in reducing agricultural pollution. Cost sharing is being proposed for encouraging best management practices. Two models, one representing an agricultural firm and the other a management agency, are used to illustrate the flexibility and analytic capacity that agencies must have in determining the cost-sharing rules that apply to on-farm abatement practices. Off-farm investment opportunities should also be considered. If water quality is to be improved, these institutional arrangements will need the capacity to generate information, adapt to changing conditions, and reconcile the conflicting incentives of other programs.-Authors