Abstract

Conventional environmental regulations under asymmetric information have attempted to resolve the information issues in nonpoint source pollution by regulating easily observable parameters like input use and management practices, well aware of the imperfect incentives this may create. This paper takes a different perspective. Instead of indirect regulation of more or less good proxies for nonpoint source pollution, it suggests to base regulations on model estimates of the environmental impacts. This is possible as environmental assessment models have gradually become reliable and produce more accurate impact estimates. For biological systems such models may also be used to decompose overall environmental impacts into natural and man-made effects. The basic idea of the paper is to offer farmer contracts to reduce nonpoint source with various price tags attached. Rather than requiring certain practices, a farmer who accepts the contract are willing to let his/her runoffs be calculated by a model based on the measures the farmer reports as implemented, which then leads to farmer paying based on the calculated runoffs from the model. Two types of contracts are envisioned: (i) where the farmer are held responsible for year specific calculated runoffs (the most demanding contract type that triggers a higher upfront payment), and (ii) where the farmer is held responsible for average calculated runoffs (the least demanding contract type with a lower upfront payment). Regulation theoretical aspects, including criteria for agent acceptance, are emphasized. A simple application is provided on nonpoint source pollution from agriculture, utilizing modern modelling tools from the Eutropia project (RCN 190028-S30) in the Vansjø watershe

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