Value of information for water quality management

There is now much interest in comprehensive watershed-based approaches to water quality protection. While there is much to be said in favor of such an approach, it is also clear that implementation requires information that is often lacking. Given that information acquisition is costly, decisions are required about the types and amounts of information that should be sought. We examine the expected value of different types of information for price and quantity instruments for agricultural nitrogen pollution control in the Susquehanna River Basin. We also compare the ex ante economic efficiency of price and quantity instruments. The analysis explicitly accounts for public sector uncertainty about the benefits and costs of pollution reductions, with economic efficiency measured as the expected benefits less the expected costs of pollution reductions. We find optimized price controls to outperform optimized quantity controls under a range of possible information structures. For both instruments, information collection improves policy performance, with information about the benefits of pollution reductions, having the greatest impact. The performance of the quantity instrument is more sensitive to information than is the price instrument. In consequence, the value of information to reduce benefit and cost uncertainty is greater for the quantity control.