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Transactions costs of expanding nutrient trading to agricultural working lands: A Virginia case study

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  • DeBoe, Gwendolen
  • Stephenson, Kurt

Abstract

Agricultural nonpoint sources (NPS) figure prominently in the design of many water quality trading programs. In concept water quality trading programs can create incentives for agricultural operators to supply low cost pollutant reductions while still keeping land in agricultural production. In practice water quality trading programs in the United States have produced few trades involving agricultural NPS. Transactions costs are a critical, but poorly understood, feature of water quality trading programs. The objective of this study is to examine the transactions costs associated with expanding the use of NPS credits in a water quality trading program in Virginia (United States) to include credits generated from agricultural working lands best management practices (BMPs). Findings indicate that transactions costs for agricultural NPS trades in Virginia are currently relatively low, due to the activity being credited: simple land conversion. Based on best available evidence, transactions costs of creating credits using management and structural BMPs will be 2 to 16 times more costly on a per project basis than for land conversion credits. Compliance monitoring protocols are a significant driver of costs for working lands credits. Our results suggest an important cost/risk tradeoff between verification costs and compliance certainty for program designers to consider.

Suggested Citation

  • DeBoe, Gwendolen & Stephenson, Kurt, 2016. "Transactions costs of expanding nutrient trading to agricultural working lands: A Virginia case study," Ecological Economics, Elsevier, vol. 130(C), pages 176-185.
    • Handle: RePEc:eee:ecolec:v:130:y:2016:i:c:p:176-185
    DOI: 10.1016/j.ecolecon.2016.06.027
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    Cited by:

    1. Filippelli, Raphael & Termansen, Mette & Hasan, Syezlin & Hasler, Berit & Hansen, Line & Smart, James C.R., 2022. "Water quality trading markets – Integrating land and marine based measures under a smart market approach," Ecological Economics, Elsevier, vol. 200(C).
    2. Meyer, Andrew G. & Raff, Zach, 2022. "Pass-through of water pollution regulation: Evidence from sewer utility bills and Wisconsin's phosphorus rule," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322444, Agricultural and Applied Economics Association.
    3. Bartkowski, Bartosz & Droste, Nils & Ließ, Mareike & Sidemo-Holm, William & Weller, Ulrich & Brady, Mark V., 2021. "Payments by modelled results: A novel design for agri-environmental schemes," Land Use Policy, Elsevier, vol. 102(C).
    4. Wang, Xu & Zhu, Lei & Fan, Ying, 2018. "Transaction costs, market structure and efficient coverage of emissions trading scheme: A microlevel study from the pilots in China," Applied Energy, Elsevier, vol. 220(C), pages 657-671.
    5. Syezlin Hasan & Line Block Hansen & James C. R. Smart & Berit Hasler & Mette Termansen, 2022. "Tradeable Nitrogen Abatement Practices for Diffuse Agricultural Emissions: A ‘Smart Market’ Approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 82(1), pages 29-63, May.
    6. Duke, Joshua M. & Liu, Hongxing & Monteith, Tyler & McGrath, Joshua & Fiorellino, Nicole M., 2020. "A method for predicting participation in a performance-based water quality trading program," Ecological Economics, Elsevier, vol. 177(C).

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    More about this item

    Keywords

    Transactions costs; Agricultural nonpoint source pollution; Best management practices; Chesapeake Bay; Water quality trading;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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