Timing Nitrogen Fertilizer Application to Reduce Nitrogen Losses to the Environment

The advantage of using insurance to help a farmeradopt a best nitrogen management plan (BNMP) thatreduces the impact of agricultural production on theenvironment is analytically and empiricallydemonstrated. Using an expected value analysis, it isshown that an insurance program can be structured soas to reduce a farmer's cost of bearing the adoptionrisk associated with changing production practicesand, thus, to improve the farmer's certaintyequivalent net return thereby promoting the adoptionof a BNMP. Using the adoption of growing-season onlyN fertilizer application in Iowa as a case study, itis illustrated how insurance may be used to promotethe adoption of this practice to reduce N fertilizeruse. It is shown that it is possible for a farmer andan insurance company both to have an incentive todevelop an insurance adoption program that willbenefit both the farmer and the insurance company,increasing net social welfare and improvingenvironmental quality in Iowa. Copyright Kluwer Academic Publishers 2000