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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.