Optimal Cost-Sharing Programs to Reduce Agricultural Pollution

Pollution from agriculture depends on the agricultural practices or technologies farmers use. Policy instruments, such as government cost-sharing programs, can reduce the costs of adopting less-polluting practices. This report examines the problem of designing economically efficient cost-sbaring programs. Farmers' decisions to adopt less-polluting technologies are based on the profitability of their farms' adjusting technology, compared with new technologies. A benchmark solution to the pollution problem serves as a reference against which to compare the optimal cost-Sharing policy with imperfect targeting of land. The optimal input subsidy scheme depends on the pollution being managed, costs associated with the participation constraint, and the social cost of public funds.