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Abstract
Under the conservation-compliance program, most of the individual producers are
forced to cut their soil erosion to 7 t per acre annually irrespective of the marginal cost of
controlling soil erosion. In a system where coupons to a ton of soil loss were issued to
producers and traded, the marginal cost of controlling soil loss within each soil type and
across different soil types would be equalized. An instrumental variable procedure was used
to determine the effect of soil erosion on net profits. The results for Iowa show that there is
considerable difference in the marginal opportunity cost of controlling soil erosion between
soil types. By assigning one ton of erosion to Iowa soil type Downs (5-10% slope) instead of
Clarion (2-5% slope), there is a savings of $5.00 per acre for the society as a whole. The
tradable coupon system is not only efficient, but will also bring in more land under soil
conservation.