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The paper provides some insight on the economics of watershed management, and specifically aims at defining, under perfect and slightly imperfect information, the optimal policy instrument to achieve the water quality standard, i.e. the water quality level maximizing the net social benefits derived from using water sources. According to the results derived in the paper, the optimal policy instrument to achieve the water quality standard depends on the magnitude of both the abatement cost necessary to achieve the water quality standard, and the reduction in damages associated with achieving the water quality standard.