Agricultural Economics Department


Date of this Version



Cornhusker Economics (September 5, 2012)


Published by University of Nebraska–Lincoln Extension, Institute of Agriculture & Natural Resources, Department of Agricultural Economics. Copyright © [2012] Board of Regents, University of Nebraska.


There is a great deal of discussion on the effectiveness of public policies relating to intervention of government into the affairs of people. Some believe in “the invisible hand of the market,” while others call for active involvement of the government. Yet both sides tend to agree that in the case where markets fail to deal with too much pollution, government needs to ensure that those who produce water pollution either reduce the levels or compensate society (perhaps through a fine) for the losses. This assumes that people are only self-interested and will not achieve a shared optimal outcome with downstream water users without monetary incentives.