Differences in Social and Public Risk Perceptions and Conflicting Impacts on Point/Nonpoint Trading Ratios

8 Pages Posted: 24 Mar 2020

See all articles by Richard D. Horan

Richard D. Horan

Michigan State University - Department of Agricultural Economics

Date Written: November 2001

Abstract

If stochastic nonpoint pollution loads create socially costly risk, then an economically optimal point/nonpoint trading ratio—the rate point source controls trade for nonpoint controls—is adjusted downward (a risk reward for nonpoint controls), encouraging more nonpoint controls. However, in actual trading programs, ratios are adjusted upward in response to nonpoint uncertainties (a risk premium for nonpoint controls). This contradiction is explained using a public choice model in which regulators focus on encouraging abatement instead of reducing damages. The result is a divergence of public and social risk perceptions, and a trading market that encourages economically suboptimal nonpoint controls.

Keywords: nonpoint source pollution, pollution trading, public choice, water quality, Q250, Q280

Suggested Citation

Horan, Richard D., Differences in Social and Public Risk Perceptions and Conflicting Impacts on Point/Nonpoint Trading Ratios (November 2001). American Journal of Agricultural Economics, Vol. 83, Issue 4, pp. 934-941, 2001, Available at SSRN: https://ssrn.com/abstract=3558621 or http://dx.doi.org/10.1111/0002-9092.00220

Richard D. Horan (Contact Author)

Michigan State University - Department of Agricultural Economics ( email )

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