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Abstract

We model a simulated green-payment policy to reduce nitrogen application on corn. In contrast to other papers, we recognize that the farm’s business-as-usual application rate cannot be known by the policymaker. We develop a structural model and data-driven approach to address this issue. We find that only one-third of the credits that would receive payments would be additional nitrogen reductions. The substantial volume of non-additional “reductions” leads the effective payment rate to be 3.5 times the price paid by the simulated policy. We discuss a further eligibility criterion that can improve policy performance.

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