A timely literature on the design of economic incentives for nonpoint pollution control has been emerging. We describe the nonpoint pollution control problem, some of the peculiar challenges it poses for policy design, and the policyrelated contributions of the theoretical and empirical literature on the economics of nonpoint pollution.

Agricultural nonpoint source water pollution has long been recognized as an important contributor to U.S. water quality problems and the subject of an array of local, state, and federal initiatives to reduce the problem. A "pay-the-polluter" approach to getting farmers to adopt best management practices has not succeeded in improving water quality in many impaired watersheds. With the prospects of reduced funding for the types of financial and technical assistance programs that have been the mainstay of agricultural water quality policy, alternative approaches need to be considered. Some changes to the way current conservation programs are implemented could increase their efficiency, but there are limits to how effective a purely voluntary approach can be. An alternative paradigm is the "polluter pays" approach, which has been successfully employed to reduce point source pollution. A wholesale implementation of the polluter-pays approach to agriculture is likely infeasible, but elements of the polluter-pays approach could be incorporated into agricultural water quality policy.

This paper examines the relative expected efficiency of four general strategies which have been proposed for achieving agricultural nonpoint pollution abatement. Emphasis is placed on the implications of differential information about the costs of changes in farm management practices, the impracticality of accurate direct monitoring, and the stochastic nature of nonpoint pollution. The possibility of using hydrological models to reduce, but not eliminate, the uncertainty about the magnitude of nonpoint loadings is incorporated into the analysis. The principal result is that appropriately specified management practice incentives should generally outperform estimated runoff standards, estimated runoff incentives, and management practice standards for reducing agricultural nonpoint pollution.

Public decision-makers require information on the benefits and costs of policies for groundwater quality protection. The averting expenditures method for valuing environmental improvements is examined and used to approximate the economic costs of groundwater degradation to households in a southeastern Pennsylvania community. Regression results indicate that averting

Water-quality trading is an area of active development in environmental markets. Unlike iconic national-scale air-emission trading programs, water-quality trading programs address local or regional water quality and are largely the result of innovations in water-pollution regulation by state or substate authorities rather than by national agencies. This article examines lessons from these innovations about the “real world” meaning of trading and its mechanisms, the economic merits of alternative institutional designs, utilization of economic research in program development, and research needed to improve the success of environmental markets for water quality.