The Impact of Transaction Costs and Differential BMP Adoption Rates on the Cost of Reducing Agricultural Nonpoint Source Pollution in Virginia

The cost estimates to meet agriculture reduction goals for the Bay run into the billions. Most cost models, however, are based on simplifying behavioral assumptions about public transaction costs, adoption rates, and implementation costs of agricultural nutrient-reducing practices (called best management practices or BMPs). Relatively little systematic research has been conducted on the transaction costs of implementing agricultural conservation programs. Similarly, watershed scale cost models typically assume constant and uniform costs for different BMPs. The objective of this paper is to examine the cost implications of including transaction costs and differential BMP costs and adoption rates associated with reducing nitrogen and phosphorus loads from agricultural sources in Virginia. The paper uses math programming to estimate the minimum cost of achieving agricultural nutrient reductions under a number of different cost scenarios that include transaction costs and differential adoption rates. Transaction costs are found to comprise between 13 and 27% of the total costs. The inclusion of plausible maximum BMP adoption rates increase costs substantially above conventional model estimates.