INTERNALIZING EXTERNALITIES OF PHOSPHORUS DISCHARGES FROM CROP PRODUCTION TO SURFACE WATER: EFFLUENT TAXES vs. UNIFORM REDUCTIONS

Some economists have argued that the "solution to pollution" is effluent taxes. Ideally, the effluent tax should be set at a level which equates marginal social (economic) costs of effluent reduction with marginal social (economic) benefits of such reduction. Because of the difficulty of measuring these costs and benefits, particularly the benefits, in recent years economists have suggested an alternate approach, This approach requires that a socially acceptable standard of environmental (water) quality be set. Effluent taxes would then be used to achieve this standard. It has been argued that effluent taxes would achieve this standard at lower economic (social) cost than would policies such as uniform treatment or uniform reduction in effluent discharge by each discharger (Kneese; Kneese and Bower; Baumol and Oates; Baumol; Freeman, Haveman and Kneese). Horner has presented a concise review of the case for effluent taxes. Few economists have disagreed with this argument.