Property Rights And The Economics Of Non-Point Source Water Regulations In Agriculture: A New Biophysical-Economic Methodological Approach

Several recent studies have examined how excess nutrient runoff from nitrogen and phosphorous have caused environmental damage in the United States. Perhaps the most significant is the hypoxia zone in the Gulf of Mexico. As a result, regulation of these nutrient levels has emerged as an important step toward environmental stewardship, yet this has been an uneven process. Some states have developed strict regulations to decrease nutrient runoff, but the majority of states have favored broader goals of reducing nutrient runoff using best management practices (BMPs) instead of strict regulations. Nevertheless, regulations that restrict the use of nutrients in production agriculture also restricts the property rights of input usability over said nutrients in the agricultural supply chain and its production processes, including at the farm-level. This paper reviews the economic literature on non-point source water regulations to reduce nutrient runoff in agricultural production in the United States. A new methodological approach is outlined that uses the Agricultural Policy and Environmental eXtender (APEX) biophysical simulation model to understand alternative production practices and nutrient management strategy economics from a farm level perspective. Some empirical examples are presented to demonstrate the usefulness of this approach.