Spatially Optimal Steady-State Phosphorus Policies in Crop Production

We analyse optimal phosphorus fertilisation and erosion control policies in a spatial, dynamic, steady-state framework. First-best instruments to incentivise farmers to undertake socially optimal choices are analysed both analytically and empirically. An empirical illustration is presented for a cereal production area of 3 hectares. We find that taxes on phosphorus use can be levied with equal effect either on fertiliser use or directly on soil phosphorus. However, a tax on soil phosphorus is simpler and poses lower information requirements for the social planner. In addition, the potential differences in socially and privately applied discount rates are shown to affect optimal tax rates