Integrating Watershed Hydrology and Economics to Establish a Local Market for Water Quality Improvement: A Field Experiment

Emi Uchida, Stephen Swallow (), Arthur J. Gold, James Opaluch, Achyut Kafle, Nathaniel H. Merrill, Clayton Michaud and Carrie Anne Gill

Ecological Economics, 2018, vol. 146, issue C, 17-25

Abstract: Innovative market mechanisms are being increasingly recognized as effective decision-making institutions to incorporate the value of ecosystem services into the economy. We present a field experiment that integrates an economic auction and a biophysical water flux model to develop a local market process consisting of both the supply and demand sides. On the supply side, we operate an auction with small-scale livestock owners who bid for contracts to implement site-specific manure management practices that reduce phosphorus loadings to a major reservoir. On the demand side, we implement a real money, multi-unit public good auction for these contracts with residents who potentially benefit from reduced water quality risks. The experiments allow us to construct supply and demand curves to find an equilibrium price for water quality improvement. The field experiments provide a proof-of-concept for practical implementation of a local market for environmental improvements, even for the challenging context of nonpoint pollution.

Keywords: Hydrologic ecosystem services; Water quality; Market-based approach; Auctions (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolec:v:146:y:2018:i:c:p:17-25

DOI: 10.1016/j.ecolecon.2017.09.003

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