Spatial Heterogeneity and the Choice of Instruments to Control Nonpoint Pollution

Because it is difficult to monitor emissions by sources in nonpoint pollution and to implement differential taxes and standards, uniform taxes and standards on chemical use are often proposed to control nonpoint pollution. This paper analyzes the relative efficiency of these uniform instruments in the presence of spatial heterogeneity. We demonstrate that the relative slopes of the marginal cost and benefits of chemical use are only one of the factors that affect the relative efficiency. Other factors include correlation between marginal costs and benefits, and the variability of both marginal benefits and the slopes of marginal benefits. In addition, we show how consideration of prohibitive taxes on low-productivity land and nonbinding standards on low-input land affect the relative efficiency.