Transaction Cost of Nonpoint Source Water Quality Credits: Implications for Trading Programs in the Chesapeake Bay Watershed

Abstract

Many of the Chesapeake Bay states have developed nutrient trading programs to provide compliance options to regulated point sources. These programs offer cost effective compliance options to regulated sources if the sum of the nutrient abatement costs and nutrient credit transaction costs are less than on‐site regulatory compliance costs. Most economic analyzes, however, either assume administrative or “transaction” costs associated with nutrient trading programs are low relative to transformation costs, or omit consideration of transaction costs altogether. This research focuses on the estimation of transaction costs associated with nutrient trading programs, with a special emphasis on the provision of nonpoint source nutrient credits from agricultural sources.