Group Contracts for Voluntary Nonpoint Source Pollution Reductions: Evidence from Experimental Auctions

Agricultural production has increasingly been identified as a leading cause of water quality impairment in the United States. As a result, there is a growing need for environmental policy instruments that can cost-effectively generate measurable reductions in nutrient runoff from farming. The development of such policies is complicated by the disperse nature of agricultural run-off. While collective nutrient loadings from agricultural sources can be determined through analyses such as a Total Maximum Daily Load process, the conveyance of nutrients from farming practices to waterways, across and through the physical landscape, makes identifying the contribution of individual sources difficult and costly. To date, most policies to reduce agricultural nutrient run-off have avoided these complications and have instead relied upon voluntary technology-based approaches, such as the USDA Environmental Quality Incentive Program. The U.S. Environmental Protection Agency (USEPA) currently lists thirty-seven water quality trading markets, in existence or development, that allow privately owned point sources to meet their regulatory bur-