Economically efficient watershed management with environmental impact and income distribution goals

This paper presents a methodology for incorporating environmental impacts and income distribution goals in economic analysis of watershed management policies. Empirical results on a small Illinois, USA, watershed indicate that farm costs are increased notably by restricting agricultural pollution and soil erosion. The income distribution constraint also reduces economic efficiency, but the efficiency loss due to implementing this constraint is less than 10% of the costs resulting from environmental regulations. An ex post comparison of these results with the actual payments offered to farmers under the incentive program currently in place in the watershed reveals that these payments are approximately equal to the losses estimated by the analysis when the burden of environmental control is shared equally among the farmers. (C) 1998 Academic Press.