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Nitrogen Fertilizer Demand from Danish Crop Farms - Regulatory Implications of Farm Heterogeneity

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  • Hansen, Lars Gårn

Abstract

This paper estimates nitrogen fertilizer demand elasticities for Danish crop farms using the dual profit function approach on micro panel data. The model includes several farm-specific parameters, allowing us to estimate the mean demand elasticity and test for homogeneity of elasticities across panel farms. The mean own-price elasticity for nitrogen is −0.45, and there is a significant standard deviation from this mean for individual farms of 0.24. Heterogeneity of demand elasticities implies that regulating fertilizer application through mandated uniform percentage reductions, as is currently used in Danish nitrogen regulation, increases abatement costs relative to tax regulation. Somewhat surprisingly, this causes the abatement costs of quota regulation to be only 8% larger than with tax regulation. Simulation results indicate that the primary threat to the efficiency of uniform reduction schemes comes from inaccurate estimation of baselines rather than from heterogeneity of elasticities.

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File URL: http://mpra.ub.uni-muenchen.de/48366/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 48366.

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Date of creation: 2004
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Publication status: Published in Canadian Journal of Agricultural Economics 3.52(2004): pp. 313-331
Handle: RePEc:pra:mprapa:48366

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Keywords: agriculture production nitrogen loss;

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  1. Mergos, G.J. & Stoforos, Ch.E., 1997. "Fertilizer demand in Greece," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 16(3), August.
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Cited by:
  1. Williamson, James M., 2010. "Does Information Matter? Assessing the Role of Information and Prices in the Nitrogen Fertilizer Management Decision," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado, Agricultural and Applied Economics Association 60892, Agricultural and Applied Economics Association.
  2. Gren, Ing-Marie & Jonzon, Ylva & Lindqvist, Martin, 2008. "Costs of nutrient reductions to the Baltic Sea," Department of Economics publications, Swedish University of Agricultural Sciences, Department of Economics 3212, Swedish University of Agricultural Sciences, Department of Economics.
  3. Ing-Marie Gren & Paul Jannke & Katarina Elofsson, 1997. "Cost-Effective Nutrient Reductions to the Baltic Sea," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 10(4), pages 341-362, December.
  4. Ribaudo, Marc & Delgado, Jorge & Hansen, LeRoy T. & Livingston, Michael J. & Mosheim, Roberto & Williamson, James M., 2011. "Nitrogen in Agricultural Systems: Implications for Conservation Policy," Economic Research Report, United States Department of Agriculture, Economic Research Service 118022, United States Department of Agriculture, Economic Research Service.
  5. Roman Keeney & Thomas W. Hertel, 2008. "U.S. Market Potential For Dried Distillers Grain With Solubles," Working Papers, Purdue University, College of Agriculture, Department of Agricultural Economics 08-13, Purdue University, College of Agriculture, Department of Agricultural Economics.

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