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Abstract

As point sources of pollution reduce their emissions due to water quality control efforts, nonpoint sources have become relatively more important. In the case of agricultural nonpoint source pollution, the policy instruments recommended by economists are not observed in practice. This study was designed to measure the magnitude of transaction costs associated with policies to reduce agricultural nonpoint source pollution and to determine whether transaction costs help explain the prevalence of the policies actually observed. Interviews with staff from governmental agencies were conducted to estimate transaction costs associated with four policies to reduce agricultural phosphorous pollution in the Minnesota River. The tax on phosphate fertilizers had the lowest transaction costs (U.S. $0.94 million), followed by educational programs on best management practices ($3.11 million), the requirement for conservation tillage on all cropped land ($7.85 million), and expansion of a permanent conservation easement program ($9.37 million). Taxes thus may have advantages with respect to transaction costs as well as abatement costs.

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