Nudging farmers to reduce water pollution from nitrogen fertilizer

Abstract

Nitrogen sourced from agricultural fertilizers is a major contributor to water pollution. Despite policies targeting a range of farming practice changes, the goal of substantially reducing nitrogen losses from farms remains elusive. We highlight three empirical results from production economics that appear to provide opportunities for behavioral science to contribute to reducing nitrogen pollution. First, many farmers apply more nitrogen than required to maximize expected profits or utility. Second, contrary to the perceptions of some farmers and farm advisers, nitrogen fertilizer is a risk-increasing input. Third, the relationship between fertilizer rate and profit is flat near the optimum, meaning that farmers can reduce fertilizer usage to some extent at minimal private cost. We discuss a variety of ways in which behavioral science, likely complemented with new market instruments and technological innovations, could exploit these insights to generate efficient policy options.