REGULATING GROUNDWATER POLLUTION - EFFECTS OF GEOPHYSICAL RESPONSE ASSUMPTIONS ON ECONOMIC-EFFICIENCY

Most economic studies of groundwater pollution ignore important geophysical complexities of groundwater contamination. For example, most studies assume that nitrogen fertilizer instantaneously leaches into an underlying water aquifer. In reality, there are time lags between fertilizer application and nitrate contamination of groundwater which complicate establishment of efficient regulations. This paper uses an optimal control model to examine empirically the effects of time lags on regulatory efficiency. Results indicate that ignoring time lags can lead to regulatory actions that set suboptimal user fees, which lead to levels of damage greater than anticipated. The results confirm that transport time lags are important when setting pollution control policies. In the case of very long time lags, pollution control policies may have no effect. The impact that time lags have on policy is stable with regard to changes in key model parameters and changes in the production function.