Dynamic Optimization of Nitrogen Use When Groundwater Contamination Is Internalized at the Standard in the Long Run

Abstract

Abstract An economic relationship between agricultural production and groundwater pollution is established first by analyzing the problem in a dynamic setting. Using experimental data from 1987 to 1990 from three sites, optimal policy rules that would maintain the nitrate contamination level at the 10 mg/l standard over time are determined next. Nitrogen application rates are then determined based on the optimal policy rule and available residual nitrogen in the root‐zone layer. It is shown that in the first year one of the sites should be fertilized at a lower‐than‐profit‐maximizing rate while the other two sites should not be fertilized at all.