The implications of transactions costs for the performance of water pollution trading involving point and nonpoint sources are examined. The analysis focuses on the impacts of transaction costs on different classes of trading partners and its consequence on the trading equilibrium. The model of point-nonpoint water pollution trading in the context of the total maximum daily loads explicitly incorporates transactions costs for both buying and selling exchanges of nonpoint source and point source permits. Transactions costs unarguably reduce the optimal level of trades in both types of permits compared to the costless trade case.


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