A Simulation of Factors Impeding Water Quality Trading
AbstractWhile there is substantial evidence that nonpoint sources have lower nutrient reduction costs than point sources, experience with water quality trading (WQT) reveals a common theme: little or no trading activity. The success of WQT seems, in part, to depend on the structure of the market created to bring buyers and sellers together to transact exchanges. To examine the ways that various market imperfections may affect the performance of a WQT market, a model is constructed which simulates a hypothetical point-nonpoint market. This paper focuses on answering the following question: How can WQT programs be designed in ways that take into account factors that result in non-optimal contracting and what are the implications (if there are any) for determining trading ratios? Here, we find that apart from any implications for environmental risk or political-economic factors, there is an economic welfare justification for high trading ratios in certain situations with limited trading information and/or other barriers to trade. Limited information and other barriers to trade which inhibit the optimal contracting of trades introduces a random element to market participation, creating a risk that high-cost sellers (low-value buyers) will transact to displace low-cost sellers (high-value buyers) who could have traded for greater gain.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Mid-Continent Regional Science Association in its journal Journal of Regional Analysis and Policy.
Volume (Year): 42 (2012)
Issue (Month): 2 ()
Environmental Economics and Policy; Resource /Energy Economics and Policy;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Richard D. Horan & James S. Shortle, 2005. "When Two Wrongs Make a Right: Second-Best Point-Nonpoint Trading Ratios," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(2), pages 340-352.
- Richard T. Woodward & Ronald A. Kaiser, 2002. "Market Structures for U.S. Water Quality Trading," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 24(2), pages 366-383.
- David A. Hennessy & Hongli Feng, 2008.
"When Should Uncertain Nonpoint Emissions Be Penalized in a Trading Program?,"
American Journal of Agricultural Economics,
Agricultural and Applied Economics Association, vol. 90(1), pages 249-255.
- Hennessy, David A. & Feng, Hongli, 2008. "When Should Uncertain Nonpoint Emissions Be Penalized in a Trading Program?," Staff General Research Papers 12868, Iowa State University, Department of Economics.
- Hennessy, David A. & Feng, Hongli, 2007. "When Should Uncertain Nonpoint Emissions be Penalized in a Trading Program?," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 9805, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
- Richard D. Horan, 2001. "Differences in Social and Public Risk Perceptions and Conflicting Impacts on Point/Nonpoint Trading Ratios," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(4), pages 934-941.
- Hahn, Robert W, 1989. "Economic Prescriptions for Environmental Problems: How the Patient Followed the Doctor's Orders," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 95-114, Spring.
- Ron Johnston, 2005. "On journals," Environment and Planning A, Pion Ltd, London, vol. 37(1), pages 2-8, January.
- Y. Ermoliev & M. Michalevich & A. Nentjes, 2000. "Markets for Tradeable Emission and Ambient Permits: A Dynamic Approach," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 15(1), pages 39-56, January.
- Atkinson, Scott & Tietenberg, Tom, 1991. "Market failure in incentive-based regulation: The case of emissions trading," Journal of Environmental Economics and Management, Elsevier, vol. 21(1), pages 17-31, July.
- Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
- Robert J. Johnston & Joshua M. Duke, 2007. "Willingness to Pay for Agricultural Land Preservation and Policy Process Attributes: Does the Method Matter?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(4), pages 1098-1115.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.