Factor-Input Demand Subject to Economic and Environmental Risk: Nitrogen Fertilizer in Kansas Dryland Corn Production

Abstract

The purpose of this article is twofold: (1) to develop a model to estimate the external costs arising from excess factor inputs; and (2) to examine how factor-input demand is affected when economic and environmental risks are simultaneously accounted for in a producer's decisionmaking process. Firm-level demand for nitrogen fertilizer in the production of dryland corn in northeast Kansas is used as an example. Many studies have evaluated the economics of fertilizer management, the economics of crop rotations to reduce commercial fertilizer use, and/or the costs of nutrient pollution (Ayer et al.; Jacobs and Casler; Jordan et al.; Lambert; Papendick, Elliot, and Power; SriRamaratnam et al.; Stoecker and Onken; Taylor and Frohberg; Walker and Hoehn; Williams et al.). Similarly, several studies have evaluated the tools (input restrictions, standards, taxes, and charges) often considered for mediating nonpoint source pollution (Homer; Jacobs and Casler; Lambert; Sharp and Bromley; Shortle and Dunn). Although several of these studies addressed the economic risk associated