INCORPORATING THE ENVIRONMENTAL CONSEQUENCES IN THE FERTILIZER USE DECISION

The increase in the use of fertilizer in agricultural production has b een associated with a substantial increase in agricultural productivit y in the US. This increase in fertilizer use has been driven by a vari ety of economic forces including variations in the price of output and changing relative factor prices. Associated with the increase in the use of fertilizer have been adverse environmental consequences that ar e not reflected in the costs and returns of agricultural production. T hat is, externalities exist whose cost need to be internalized. Becaus e the use of fertilizer has been shown to respond to market forces, it is efficient to use the market to control the use of fertilizer. This can be done through, for example, the use of a fertilizer tax. (C) 19 97 Elsevier Science B.V.