Economic instruments and environmental policy in agriculture

Economic instruments can achieve environmental goals at least cost and provide incentives for further improvements. There are limited opportunities for the use of such instruments in agriculture where the pollution problems can be traced as in the case of intensive livestock operations. However, most environmental problems in agriculture involve a large number of diffuse pollution sources whose abatement practices are unobservable rendering it difficult to achieve cost-effective pollution control with any single instrument. Rather than relying on first-best solutions through economic instruments, the most effective way of dealing with diffuse-source pollution problems in agriculture may be technological developments and business-led initiatives.