Imperfect Regulation and Prior Incentives: Evidence from Nitrogen Pollution Control

Gwenolé Le Velly () and Alexandre Sauquet ()
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Gwenolé Le Velly: CEE-M - Centre d'Economie de l'Environnement - Montpellier - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro - Montpellier SupAgro - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement, CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier
Alexandre Sauquet: CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier

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Abstract: Imperfect information and lobbying power often lead to imperfect regulations. This is presumably the case of the European Nitrates Directive, which aims to reduce water pollution from agricultural sources but has faced substantial resistance. We argue that farmers' responses to this imperfect regulation may depend on whether they have previously received economic incentives -Agri-Environmental Schemes (AES) -promoting the same practice. To test this, we examine the Directive's requirement that farmers implement cover crops on plots located in Nitrate Vulnerable Zones (NVZs). The staggered designation of municipalities as NVZs provides a natural identification strategy. Using difference-in-differences estimators applied to French farm-level data from 2000 to 2020, we find that, despite the presence of avoidance strategies, NVZ entry significantly increases cover crop adoption in both groups, with substantially larger effects among AES beneficiaries. These results suggest that economic and regulatory incentives can act as complements.

Keywords: Nitrates directive; Cover crops; Staggered DID; Environmental policy design; Imperfect regulation (search for similar items in EconPapers)
Date: 2026
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