Endogenous transport coefficients: Implications for improving water quality from multi-contaminants in an agricultural watershed

The effectiveness of imperfect pollution control instruments is examined fo r a diffuse source, multi-contaminant problem in which the transport coeffi cients for sediment-bound residuals are endogenous. Similar evaluations fix the percentage of sediment deposited and optimize either for a single firm managing the whole watershed or on a firm by firm basis. This study shows that ignoring the dependence of the transport coefficients on intervening l and uses creates a positive externality. The filtering potential of activit ies conducted by firms close to the receptor permits firms further away to undertake more profitable but erosive practices. Optimizing management choi ces, and consequently endogenizing the transport coefficients, for all firm s simultaneously removes the externality. An empirical application combines hydrological simulation models with an economic optimization model for nut rient pollution of surface and ground water within an agricultural watershe d. Although firms are homogeneous in abatement costs, differences in spatia l location leave uniform instruments unable to achieve the water quality go al efficiently. An ambient tax/subsidy scheme can achieve the water quality goal efficiently but the informational requirements will be excessive in m ost situations where the transport mechanisms for residuals are dependent u pon the practices of independent decision making units.