Improving the cost-effectiveness of agricultural pollution control: The use of performance-based incentives

Abstract

A griculture remains the leading contributor of nonpoint source (NPS) pollution to ground and surface waters in the United States (USEPA 2009). One of the most important reasons that the level of NPS pollution from agriculture continues to be excessive is because clear signals to farmers, from markets or policy, are lacking (Ribaudo et al. 1999). The full costs of agricultural NPS pollution generally do not enter into the farm manager's decision-making process because (1) the damages to water quality that stem from farming activities are not incurred primarily by the farm business itself and (2) farming activities are exempted, for the most part, from many water-quality regulations. Therefore, the farmer has little incentive, other than his or her own stewardship values, to reduce the farm's impact on water quality. Performance-based incentives are designed to reward farmers for achieving specified environmental performance targets. The payments, based on outcomes, are not tied to the use or cost of any specific practice(s). As such, farmers have the flexibility and incentive to seek out and use the most appropriate and cost-effective way(s) to achieve the specified environmental outcome. This approach has the potential to improve environmental quality, enhance farm income, and provide greater accountability…