Regulation of Nitrogen Pollution: Taxes versus Quotas

E. Kwan Choi and Eli Feinerman

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: This paper investigates the effects of first-best policies to regulate nitrogen application. Some nitrogen fertilizer is applied ex ante before a random rainfall, but side dressed nitrogen may be applied ex post. First-best policy is a tax or a quota on ex ante application, because side dressed nitrogen is not leached. Since a risk-averse farmer uses more nitrogen ex ante than a risk-neutral farmer, a higher tax must be imposed on the former. Action equivalent first-best taxes and quotas are also welfare equivalent. An empirical model for wheat in Israel was used to demonstrate the analytical

Date: 1995-01-01
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