Economic analysis of best management practices in the Gum Creek Watershed water quality program

ABSTRACT: Crop growth and agricultural nonpoint pollution levels were simulated under stochastic weather and market observations to predict farmers9 expected net returns and the environmental effects of implementing best management practices (BMPs) under risky and uncertain conditions. Stochastic dominance analysis reveals economically preferred BMPs, the trade-offs relative to the production and market uncertainties, and the opportunity costs of altering current practices to meet prospective regulatory limits for nitrogen runoff and leaching. Our simulations provide evidence that the control of nonpoint source pollution in this area through crop production and water management practices alone appears to be expensive and very limited. A federal cost-share program could provide incentives to farmers for voluntary adoption of economically efficient and environmentally acceptable BMPs. Simulation of expected returns may also allow the identification of those producers who could most efficiently reduce N leaching/runoff and woidd be superior to an alternative scenario of regulating/penalizing all producers in the watershed.