Crop price and risk effects on farm abatement costs

Potential leaching losses of nitrogen depend in large part on the craps gro wn. Since crop selection is a major means of abatement for nitrates in grou ndwater, it follows that the compliance costs to producers for reducing exc ess nitrogen is influenced by crop prices. This paper demonstrates the role that crop prices play in determining the level of on-farm abatement casts and even the necessity for regulatory policies to deal with the nitrate pro blem. Government support programs, specifically the Gross Revenue Insurance Program (GRIP), have increased the relative support for corn, which has hi gher leachate potential than other crops, and thereby requires increased ab atement effort. The required level of abatement is less when risk aversion is considered than under risk neutrality, since. the variability in returns among rotations is related to the degree of emissions generated. Changes i n the mean and variance of relative output prices can significantly alter t he optimal crop mix, leachate potential and on-farm abatement efforts. Subs equently, there is an effect on abatement costs associated with alternative environmental control instruments, which in turn affects policy design thr ough issues such as political feasibility and equity considerations.