Regulation of Nitrogen Pollution: Taxes versus Quotas

Date
1995
Authors
Choi, E. Kwan
Feinerman, Eli
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Research Projects
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Economics
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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

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This is an article from Journal of Agricultural and Resource Economics 20 (1995): 122. Posted with permission.

Keywords
first-best policy, quotas, taxes
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