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Market Structures for U.S. Water Quality Trading


  • Richard T. Woodward
  • Ronald A. Kaiser


The use of transferable discharge permits as a water pollution control policy is rapidly increasing in the United States. Drawing on evidence from existing water quality trading programs, this paper provides a taxonomy of the forms that such markets take. Four main structures are identified: exchanges, bilateral negotiations, clearinghouses, and sole-source offsets. Each of these structures has its own strengths and weaknesses; none is optimal for all scenarios. Since market structure is largely determined by a program's rules, policy makers should be aware of the differences between these structures and the conditions under which each comes to be. Copyright 2002, Oxford University Press.

Suggested Citation

  • 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.
  • Handle: RePEc:oup:revage:v:24:y:2002:i:2:p:366-383

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    References listed on IDEAS

    1. Arun S. Malik & David Letson & Stephen R. Crutchfield, 1993. "Point/Nonpoint Source Trading of Pollution Abatement: Choosing the Right Trading Ratio," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(4), pages 959-967.
    2. Horan, Richard D. & Shortle, James S. & Abler, David G., 1998. "Ambient Taxes When Polluters Have Multiple Choices," Journal of Environmental Economics and Management, Elsevier, vol. 36(2), pages 186-199, September.
    3. Levinson, Arik, 1999. "Grandfather regulations, new source bias, and state air toxics regulations," Ecological Economics, Elsevier, vol. 28(2), pages 299-311, February.
    4. Morgan, Cynthia L. & Coggins, Jay S. & Eidman, Vernon R., 2000. "Tradable Permits For Controlling Nitrates In Groundwater At The Farm Level: A Conceptual Model," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 32(02), August.
    5. Ribaudo, Marc & Horan, Richard D. & Smith, Mark E., 1999. "Economics of Water Quality Protection from Nonpoint Sources: Theory and Practice," Agricultural Economics Reports 33913, United States Department of Agriculture, Economic Research Service.
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    Cited by:

    1. Zhao, Xiaobing & Fletcher, Jerald J., 2004. "An Optimal Control Approach To Water Quality Trading: Cost-Effective Point/Nonpoint Management In A Watershed Framework," 2004 Annual meeting, August 1-4, Denver, CO 20195, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Smith, Craig M. & Peterson, Jeffrey M. & Leatherman, John C. & Williams, Jeffery R., 2012. "A Simulation of Factors Impeding Water Quality Trading," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 42(2).
    3. Sheila M. Olmstead, 2010. "The Economics of Water Quality," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 4(1), pages 44-62, Winter.
    4. repec:ags:aaea16:236373 is not listed on IDEAS
    5. Rimsaite, Renata & Fisher-Vanden, Karen A. & Olmstead, Sheila M., 2016. "Price Efficiency in U.S. Water Rights Markets," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 243124, Agricultural and Applied Economics Association.
    6. Cynthia Morgan & Ann Wolverton, 2005. "Water Quality Trading in the United States," NCEE Working Paper Series 200507, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Jun 2005.
    7. Bhatta, Arun & Bigsby, Hugh R. & Cullen, Ross, 2011. "Alternative to Comprehensive Ecosystem Services Markets: The Contribution of Forest-Related Programs in New Zealand," 2011 Conference, August 25-26, 2011, Nelson, New Zealand 115350, New Zealand Agricultural and Resource Economics Society.
    8. repec:eee:ecomod:v:222:y:2011:i:9:p:1580-1591 is not listed on IDEAS
    9. Ribaudo, Marc O. & Heimlich, Ralph & Peters, Mark, 2005. "Nitrogen sources and Gulf hypoxia: potential for environmental credit trading," Ecological Economics, Elsevier, vol. 52(2), pages 159-168, January.
    10. Greenhalgh, Suzie & Selman, Mindy, 2012. "Comparing Water Quality Trading Programs: What Lessons Are There To Learn?," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 42(2).
    11. James Shortle & Richard D. Horan, 2013. "Policy Instruments for Water Quality Protection," Annual Review of Resource Economics, Annual Reviews, vol. 5(1), pages 111-138, June.

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