THE ECONOMIC CONSEQUENCES OF REDUCED FERTILIZER USE - A VIRTUAL PRICING APPROACH

The virtual pricing approach is applied to perform an ex ante analysis of reduced chemical use on agricultural output, input demand and prof itability. Aggregate data on Indiana agriculture spanning the 1950-86 period are used to estimate parameters of a normalized quadratic profi t function using Bayesian techniques. Empirical results on the respons e of substitute and complementary inputs to a 15% and a 30% fertilizer restriction are obtained and the ad valorem taxes required to accompl ish such restriction are calculated.