| Research on the design of instruments for nonpoint pollution control often ignores policy-induced market distortions, information costs, implementation and enforcement costs, or political constraints that may influence the efficiency and optimal design of policy instruments. However, the real world is more complex. Market distortions, transaction costs, and political constraints are the norm. Their implications must be understood if society is to have sensible nonpoint policy. This research expands our understanding by relaxing some critical assumptions.; This study compares alternative policy instruments with and without market distortions, uniform schemes with differentiated schemes, and broadly based with narrowly based specifications. In addition, public uncertainty for economic and hydrologic parameters is also examined for the choice of alternative instruments. Six policy instruments are, an excess nitrogen tax, an excess nitrogen standard, a fertilizer tax, a fertilizer standard, a multiple-input tax, and a multiple-input standard.; A partial equilibrium model of the U.S. corn production is used to numerically simulate the policy performance of the six instruments for the agricultural nonpoint pollution control. Since key parameters are unknown, the Monte Carlo analysis can provide robust results. The simulation results show that policy performance varies when markets are distorted or not, and when policy choice is selected ex post or ex ante. No policy can outperform another policy from the perspective of each interest group under all scenarios.; Environmental policies have dual gains from reducing pollution externalities and the deadweight losses of commodity programs when markets are distorted. In addition, this study suggests that narrowly based/uniform schemes perform as well as broadly based/differentiated schemes with and without market distortions. Transaction cost considerations therefore favor instruments that are narrowly based and uniform across regions. |
