Two Cost Analyses in Resource Economics: The Public Service Costs of Alternative Land Settlement Patterns and Effluent Allowance Trading in Long Island Sound

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Virginia Tech


This study offers two cost analyses to inform public policy decisions on the use of land and water resources. The first presents some public service costs associated with different spatial forms of land development. The second cost analysis presents costs associated with three different policy options for meeting water quality goals in Long Island Sound.

The objective the first analysis is to determine the cost to local governments of providing water distribution and wastewater collection services to alternative spatial forms of residential development. Components of spatial form are explicitly defined in terms of lot size, distance and tract dispersion. An engineering cost model is used to determine the water and sewer costs to three sets of hypothetical land settlement scenarios. Each set shows the effect of one component of spatial form on cost.

The results show that smaller lots, shorter distances between existing centers and less tract dispersion reduce public water and sewer costs. Lot size is found to have the most pronounced effect on water and sewer cost. Some policy options for reducing the public service costs associated with development are considered.

The objective of the second cost analysis is to analyze the cost implications of a nitrogen allowance trading system for wastewater treatment plants in Connecticut. Effluent allowance trading involves the transfer of pollution control responsibility between pollution sources. Effluent allowances are the right to discharge a given quantity of waste into the environment over a given time period. Allowance trading has been proposed as a way of reducing pollution control costs, encouraging innovative pollution prevention techniques and more quickly achieving water quality goals.

Long Island Sound, a major estuary in the northeastern United States, experiences chronically low dissolved oxygen levels. Excessive nitrogen loads from anthropogenic activities in the Sound watershed have been identified as the cause of the oxygen problem. The state of Connecticut is examining the possibility of introducing an effluent allowance trading system in order to reduce the cost of achieving required reductions in nitrogen discharge.

A linear programming model is used to predict trading outcomes and allowance prices. The total cost of achieving a nitrogen load cap is calculated under three administrative approaches. The first approach is a uniform reduction requirement where all plants are required to reduce discharge by the same proportion. The second approach is an administrative reallocation of waste load where a regulatory agency assigns control responsibility based on the agency's understanding of relative costs. The third approach is a flexible effluent allowance trading system. The results will show that a trading program offers cost savings over traditional regulatory approaches, demonstrate the potential for further cost savings from pollution prevention activities and estimate the cost savings that would result from including nonpoint sources in the overall nitrogen reduction strategy.



nitrogen pollution, water and sewer costs, point source pollution, effluent allowance trading, sprawl, land development