IDEAS home Printed from https://ideas.repec.org/a/eee/agisys/v107y2012icp13-20.html
   My bibliography  Save this article

Nitrogen use and the effects of nitrogen taxation under consideration of production and price risks

Author

Listed:
  • Finger, Robert

Abstract

Production and price risks affect optimal nitrogen use as well as the effects of nitrogen taxation if farmers’ risk aversion is taken into account. We apply a bio-economic model to investigate the influence of risk aversion on nitrogen use in Swiss maize production. Income risks for farmers are expected to increase in the future, for instance, due to higher price variability caused by market liberalization or by higher yield variability caused by climate change. We investigate the influence of changes in these sources of risks on optimal levels of nitrogen use and its influence on the effects of nitrogen taxation. Our empirical analysis for Swiss maize production shows that risk-aversion leads to lower levels of nitrogen application than for risk-neutral farmers. Furthermore, nitrogen taxes lead to higher reductions of nitrogen use if farmers are risk-averse and these farmers face lower abatement costs. Thus, analyses on the effect of nitrogen taxes that are solely based on profit maximizing behavior may underestimate nitrogen reductions and overestimate abatement costs. Taking expected shocks in price and yield variability into account, we find that these differences between risk neutral and risk-averse decision makers will increase further. External influences on production and price risks can thus influence the effects of agricultural policies on farmers’ decision making. Thus, considering farmers’ risk-preferences as well as potential increases in farmers’ income risks can improve agricultural policy making.

Suggested Citation

  • Finger, Robert, 2012. "Nitrogen use and the effects of nitrogen taxation under consideration of production and price risks," Agricultural Systems, Elsevier, vol. 107(C), pages 13-20.
  • Handle: RePEc:eee:agisys:v:107:y:2012:i:c:p:13-20
    DOI: 10.1016/j.agsy.2011.12.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0308521X1100179X
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Swinton, Scott M. & Clark, David S., 1994. "Farm-Level Evaluation Of Alternative Policy Approaches To Reduce Nitrate Leaching From Midwest Agriculture," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 23(1), April.
    2. Robert Finger & Stéphanie Schmid, 2008. "Modeling agricultural production risk and the adaptation to climate change," Agricultural Finance Review, Emerald Group Publishing, vol. 68(1), pages 25-41, May.
    3. Babcock, Bruce A. & Blackmer, Alfred M., 1992. "The Value Of Reducing Temporal Input Nonuniformities," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(02), December.
    4. Moschini, Giancarlo & Hennessy, David A., 2001. "Uncertainty, risk aversion, and risk management for agricultural producers," Handbook of Agricultural Economics,in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 2, pages 88-153 Elsevier.
    5. H. Von Blottnitz & A. Rabl & D. Boiadjiev & T. Taylor & S. Arnold, 2006. "Damage costs of nitrogen fertilizer in Europe and their internalization," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 49(3), pages 413-433.
    6. Glenn Sheriff, 2005. "Efficient Waste? Why Farmers Over-Apply Nutrients and the Implications for Policy Design," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 27(4), pages 542-557.
    7. Babcock, Bruce A. & Blackmer, A. M., 1992. "Value of Reducing Temporal Input Nonuniformities (The)," Staff General Research Papers Archive 10587, Iowa State University, Department of Economics.
    8. Chowdhury, Manzoor E. & Lacewell, Ronald D., 1996. "Implications Of Alternative Policies On Nitrate Contamination Of Groundwater," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 21(01), July.
    9. Olivier Mahul, 2003. "Hedging price risk in the presence of crop yield and revenue insurance," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 30(2), pages 217-239, June.
    10. Rosenzweig, Mark R & Binswanger, Hans P, 1993. "Wealth, Weather Risk and the Composition and Profitability of Agricultural Investments," Economic Journal, Royal Economic Society, vol. 103(416), pages 56-78, January.
    11. Just, Richard E. & Pope, Rulon D., 1978. "Stochastic specification of production functions and economic implications," Journal of Econometrics, Elsevier, vol. 7(1), pages 67-86, February.
    12. Finger, Robert & Hediger, Werner, 2007. "The Application of Robust Regression to a Production Function Comparison – the Example of Swiss Corn," MPRA Paper 4740, University Library of Munich, Germany.
    13. Sarris, Alexander H., 2000. "Has world cereal market instability increased?," Food Policy, Elsevier, vol. 25(3), pages 337-350, June.
    14. Murat Isik, 2002. "Resource Management under Production and Output Price Uncertainty: Implications for Environmental Policy," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(3), pages 557-571.
    15. Robert Finger, 2010. "Revisiting the Evaluation of Robust Regression Techniques for Crop Yield Data Detrending," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(1), pages 205-211.
    16. Babcock, Bruce A., 1992. "Effects of Uncertainty on Optimal Nitrogen Applications (The)," Staff General Research Papers Archive 10588, Iowa State University, Department of Economics.
    17. Alfons Weersink & Charry Dutka & Michael Goss, 1998. "Crop Price and Risk Effects on Farm Abatement Costs," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 46(2), pages 171-190, July.
    18. C. W. Rougoor & H. Van Zeijts & M. F. Hofreither & S. Backman, 2001. "Experiences with Fertilizer Taxes in Europe," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 44(6), pages 877-887.
    19. Phoebe Koundouri & Marita Laukkanen & Sami Myyrä & Céline Nauges, 2009. "The effects of EU agricultural policy changes on farmers' risk attitudes," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 36(1), pages 53-77, March.
    20. Choi, E. Kwan & Feinerman, Eli, 1995. "Regulation Of Nitrogen Pollution: Taxes Versus Quotas," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 20(01), July.
    21. Mark W. Rosegrant & James A. Roumasset, 1985. "The Effect Of Fertiliser On Risk: A Heteroscedastic Production Function With Measurable Stochastic Inputs," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 29(2), pages 107-121, August.
    22. Jules Pretty & Craig Brett & David Gee & Rachel Hine & Chris Mason & James Morison & Matthew Rayment & Gert Van Der Bijl & Thomas Dobbs, 2001. "Policy Challenges and Priorities for Internalizing the Externalities of Modern Agriculture," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 44(2), pages 263-283.
    23. Salvatore Di Falco & Jean-Paul Chavas & Melinda Smale, 2007. "Farmer management of production risk on degraded lands: the role of wheat variety diversity in the Tigray region, Ethiopia," Agricultural Economics, International Association of Agricultural Economists, vol. 36(2), pages 147-156, March.
    24. Lambert, David K., 1990. "Risk Considerations In The Reduction Of Nitrogen Fertilizer Use In Agricultural Production," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 15(02), December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Benjamin Dequiedt & Emmanuel Servonnat, 2016. "Risk as a limit or an opportunity to mitigate GHG emissions? The case of fertilisation in agriculture," Working Papers 1606, Chaire Economie du climat.
    2. repec:eee:agisys:v:154:y:2017:i:c:p:34-44 is not listed on IDEAS
    3. Lehmann, Niklaus & Finger, Robert & Klein, Tommy & Calanca, Pierluigi & Walter, Achim, 2013. "Adapting crop management practices to climate change: Modeling optimal solutions at the field scale," Agricultural Systems, Elsevier, vol. 117(C), pages 55-65.
    4. El Benni, Nadja & Finger, Robert, 2014. "Where is the risk? Price, yield and cost risk in Swiss crop production," Revue d'Etudes en Agriculture et Environnement, Editions NecPlus, vol. 95(03), pages 299-326, September.
    5. Meyer-Aurich, Andreas & Gandorfer, Markus & Trost, Benjamin & Ellmer, Frank & Baumecker, Michael, 2016. "Risk efficiency of irrigation to cereals in northeast Germany with respect to nitrogen fertilizer," Agricultural Systems, Elsevier, vol. 149(C), pages 132-138.
    6. Finger, Robert, 2012. "How strong is the “natural hedge”? The effects of crop acreage and aggregation levels," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122538, European Association of Agricultural Economists.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:agisys:v:107:y:2012:i:c:p:13-20. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/agsy .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.