Risk Indices for Economic and Water Quality Tradeoffs: An Application to Great Plains Agriculture

Abstract

Agricultural nonpoint source pollution is a multidimensional problem encompassing several forms of contaminants and several environments (e.g., surface water and groundwater). Environmental risk indices can account for differences in chemical attributes and aggregate environmental outcomes across several forms of contaminants and environments. The objective of this analysis is to develop three environmental risk indices and use the indices to compare the environmental risk and economic returns associated with alternative production systems in the Oklahoma Panhandle region of the Central High Plains. Three environmental risk indices are developed that incorporate different information concerning the environmental effects of pesticide use. The first index-the environmental impact quotient (EIQ)-incorporates only chemical properties into the environmental risk assessment, while the two other indices-chemical environmental index (CINDEX) and chemical concentration index (CONC) also factor in estimates of expected annual runoff and percolation loadings and concentrations, respectively. Both statistical and graphical comparisons indicate that the three indices provide similar rankings of alternative production systems based upon their potential environmental consequences. The CONC index is characterized by greater volatility than the other indices, and its rankings of the production activities are least correlated with those derived from the two other indices. Results suggest some potential for reduction in environmental risk without large reductions in net returns. Application ofthe EIQ index, which does not explicitly incorporate chemical loading or concentration estimates, provides the highest estimate of income reductions. Environmental risk can be reduced by the greatest amount without significant income losses when CONC is used as the risk measurement. Therefore, although the three indices generate similar rankings of alternative production activities, their application can provide very different estimates of the economic consequences of attaining environmental objectives.