DYNAMIC OPTIMIZATION OF NITROGEN USE WHEN GROUNDWATER CONTAMINATION IS INTERNALIZED AT THE STANDARD IN THE LONG-RUN

An economic relationship between agricultural production and groundwat er pollution is established first by analyzing the problem in a dynami c setting. Using experimental data from 1987 to 1990 from three sites, optimal policy rules that would maintain the nitrate contamination le vel at the 10 mg/l standard over time are determined next. Nitrogen ap plication rates are then determined based on the optimal policy rule a nd available residual nitrogen in the root-zone layer. It is shown tha t in the first year one of the sites should be fertilized at a lower-t han-profit-maximizing rate while the other two sites should not be fer tilized at all.