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Nonpoint source pollution and two-part instruments

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  • Renan-Ulrich Goetz

    ()

  • Yolanda Martínez

    ()

Abstract

As an alternative to the existing environmental policy instruments, recent literature proposes to combine different policy instruments (two-part instruments) which have most of the properties of a first-best Pigouvian tax while minimizing the need for monitoring and enforcement. This article explores the design and applicability of a policy based on two-part instruments to control nonpoint source pollution. Applying this approach, however, leads to a moral hazard problem, since it is not only the input itself that is responsible for the pollution but also the way it is applied. The analysis determines the optimal combinations of taxes and subsidies as a function of the ability to observe the output and the applied inputs. In an empirical illustration we determine the magnitude of the taxes and subsidies to establish the socially optimal level of nitrate emissions from livestock manure for a region in northeast Spain. Copyright Springer Japan 2013

Suggested Citation

  • Renan-Ulrich Goetz & Yolanda Martínez, 2013. "Nonpoint source pollution and two-part instruments," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 15(3), pages 237-258, July.
  • Handle: RePEc:spr:envpol:v:15:y:2013:i:3:p:237-258
    DOI: 10.1007/s10018-012-0052-4
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    References listed on IDEAS

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    1. Fullerton, Don & Wolverton, Ann, 2005. "The two-part instrument in a second-best world," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1961-1975, September.
    2. Spraggon, John, 2002. "Exogenous targeting instruments as a solution to group moral hazards," Journal of Public Economics, Elsevier, vol. 84(3), pages 427-456, June.
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    5. Walls, Margaret & Palmer, Karen, 2001. "Upstream Pollution, Downstream Waste Disposal, and the Design of Comprehensive Environmental Policies," Journal of Environmental Economics and Management, Elsevier, vol. 41(1), pages 94-108, January.
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    10. Don Fullerton & Ann Wolverton, 1997. "The Case for a Two-Part Instrument: Presumptive Tax and Environmental Subsidy," NBER Working Papers 5993, National Bureau of Economic Research, Inc.
    11. Ann Wolverton & Don Fullerton, 2000. "Two Generalizations of a Deposit-Refund Systems," American Economic Review, American Economic Association, vol. 90(2), pages 238-242, May.
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    More about this item

    Keywords

    Two-part instruments; Nonpoint pollution; Moral hazard; D62; Q10; Q50; Q53;

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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