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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.

Suggested Citation

  • Hansen, Lars Gårn, 2004. "Nitrogen Fertilizer Demand from Danish Crop Farms - Regulatory Implications of Farm Heterogeneity," MPRA Paper 48366, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:48366
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    References listed on IDEAS

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    3. Mergos, G. J. & Stoforos, Ch. E., 1997. "Fertilizer demand in Greece," Agricultural Economics, Blackwell, vol. 16(3), pages 227-235, August.
    4. Roberto J. Garcia & Alan Randall, 1994. "A Cost Function Analysis to Estimate the Effects of Fertilizer Policy on the Supply of Wheat and Corn," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 16(2), pages 215-230.
    5. Mark Denbaly & Harry Vroomen, 1993. "Dynamic Fertilizer Nutrient Demands for Corn: A Cointegrated and Error-Correcting System," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(1), pages 203-209.
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    1. Roman Keeney & Thomas W. Hertel, 2008. "U.S. Market Potential For Dried Distillers Grain With Solubles," Working Papers 08-13, Purdue University, College of Agriculture, Department of Agricultural Economics.
    2. Ing-Marie Gren & Paul Jannke & Katarina Elofsson, 1997. "Cost-Effective Nutrient Reductions to the Baltic Sea," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 10(4), pages 341-362, December.
    3. 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 60892, Agricultural and Applied Economics Association.
    4. Keeney, Roman & Hertel, Thomas W., 2008. "Yield Response To Prices: Implications For Policy Modeling," Working papers 45969, Purdue University, Department of Agricultural Economics.
    5. 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 118022, United States Department of Agriculture, Economic Research Service.
    6. Williamson, James M., 2011. "The Role of Information and Prices in the Nitrogen Fertilizer Management Decision: New Evidence from the Agricultural Resource Management Survey," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 36(3), pages 1-21.
    7. DALKIR Serdar & KALKAN Ekrem, 2010. "Application of the Proportionality-Calibrated AIDS Model to Predicting Potential Welfare Effects of Mergers between Fertilizer Sellers as Part of the Turkish Privatization Program," EcoMod2003 330700039, EcoMod.
    8. Mohammed AL MAHISH, 2017. "The Impact Of Energy Subsidy On Nitrogen Fertilizer Producers In The Gcc," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 17(2), pages 99-118.

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    Keywords

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    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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