Resumen
Direct policies for the management of nonpoint source pollution are difficult to apply given asymmetric information, spatial and temporal variability, and uncertainty. There is increasing awareness that these limitations may be overcome where profitable mitigation practices are broadly adopted by polluters. Nitrification inhibitors (chemicals applied to paddocks that retard the nitrification process in soils) are a rare example of a mitigation practice that reduces pollutant loads and potentially increases farm profit through promoting pasture production. This study investigates their capacity to achieve both goals to inform policy makers and producers of their potential for simultaneously improving farm profit and water quality. With an assumed 10 percent increase in pasture production in response to nitrification inhibitor application, nitrification inhibitors are a profitable innovation because greater pasture production supports higher stocking rates. Nonetheless, their overall impact on farm profit is low, even when the cost of inhibitors or their impact on subsequent pasture production is substantially altered. However, inhibitors are found to be a critical mitigation practice for farmers posed with decreasing leaching loads to satisfy regulatory requirements. These findings suggest that, despite their shortcomings for nonpoint pollution regulation, direct policies appear to be the only way to motivate producers to account for their impact on environmental values given the current lack of profitable mitigations.