This dissertation explores the adoption of Best Management Practices (BMPs) in the Kentucky River watershed. Through a survey of farmers in the Kentucky River watershed, chapter two investigates farmers’ current BMP adoption and their willingness to engage in additional adoption incentivized through a proposed Water Quality Trading (WQT) program. This chapter includes two parts: the first part is to investigate the factors influencing farmers’ current usage of BMPs; the second part is to estimate farmers’ willingness to implement BMPs given different levels of compensation specified in the survey. Farmers’ experiences about BMPs are more likely to persuade them to adopt additional BMPs. The activities of using riparian buffers, fencing off animals and building up waste storage facilities are found to be responsive to the levels of compensation offered. The third chapter discusses farmers’ expected economic benefits from BMP adoption, and addresses the missing data issue. In the survey, of those respondents who indicated that they accept the offered level of compensation, about 20% of them did not answer the follow-up question of how much they would adopt the practice, creating missing data. We compare three methods to handle the issue of missing data: deletion method, mean imputation, and multiple imputation method. Following these methods, we estimate factors affecting how much farmers may engage in BMPs using a Tobit or Poisson model. The results show that increasing the compensation for using BMPs is more likely to encourage farmers to adopt riparian buffers. Results obtained using the method of multivariate imputation by chained equation are more promising than using the deletion or mean imputation method. The fourth chapter examines whether wealth change and local community interaction may affect BMP adoption. Survey data on BMP adoption are combined with the local community data from publically available sources. Results show that the decrease in land values between 2007 and 2012 discouraged the adoption of riparian buffers; the equine inventory in local communities has positive impact on the adoption of animal fences and nutrient management; the more rural the local communities are, the less likely farmers would fence off livestock from water resources.