A POLLUTION TRADING SYSTEM WITH COST ASSYMETRY: An Application to Nonpoint Source Trading in the Boone River Watershed

The goal of watershed scale analysis is to assign to each field unit the best set of agricultural practices in order to achieve a maximum outcome from both environmental and economic perspectives. Watershed physically based models linked to multiobjective optimization models can overcome the high dimensionality of watershed pollution problem. Market based instruments such as permit trading settings which consider abatement measures’ cost heterogeneity have been regarded as being superior to command and control programs. Empirical analysis reveals that when local environmental authority and farmers have different cost information, a permit trading program has the potential to offer cost savings.