REDUCING NUTRIENT APPLICATION RATES FOR WATER QUALITY PROTECTION IN INTENSIVE LIVESTOCK AREAS: POLICY IMPLICATIONS OF ALTERNATIVE PRODUCER BEHAVIOR

High rates of commercial fertilizer and animal manure application on cropland have been identified as an important cause of ground and surface water degradation in many areas of the country. Suggested remedies are often based on the idea that fertilization levels are economically irrational for the individual farmer. The received wisdom is that farmers could simultaneously improve their own economic well being and reduce the degradation of the ground and surface waters by fertilizing only to meet crop nutrient needs. Rather than assuming that farmers act irrationally, this study examines the fertilization problem on a mixed crop-livestock farm from the perspective of a risk-averse farmer coping with two key uncertainties: crop yield response to nitrogen applications and the nitrogen content of manure. The effects of fertilization decisions by such a farmer of various policy prescriptions for reducing surface and ground water pollution are examined. The results underscore the importance of understand producer behavior for the design of economically sound policy.