ABSTRACT
This chapter begins with a nonpoint externality theory. Agricultural runoff is a nonpoint externality with notable implications for both research and policy. The development begins with a simple static model of the traditional point-source externality. A nonpoint externality exists whenever the externality contributions of individual economic agents cannot be practically measured by direct monitoring. The point externality can be approached with either of two policies; the first is price guided, and the second is quantity. Externality levels have often been linked directly to an output quantity. It is also important that each nonpoint policy under consideration be specified so that it is a least-cost means of obtaining a given level of environmental improvement. Although the validity of nonpoint production functions must be examined in each setting, their theoretical consequences are significant since they imply interesting and useful policy and research conclusions.
