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Utilizing the "putty-clay" production framework, a methodology for empirical assessment of the relationship between aggregate economic variables and environmental policy instruments is developed. Practicality is demonstrated by an application of the approach to the problem of dairy pollution in the Santa Ana River Basin of California. Results indicate pollution taxes to be substantially more efficient than emission standards in achieving a predetermined environmental quality goal. However, redistribution of tax revenues back to the regulated industry may be required to promote political feasibility. [ABSTRACT FROM AUTHOR]