This study integrates economic and physical models to estimate the social costs of several commonly suggested policies (chemical-use tax and three types of conservation payments) for reducing nitrogen loads to the Mississippi River and for controlling hypoxia in the Gulf of Mexico. The economic models predict farmer's crop rotations, tillage practices, and participation in the Conservation Reserve Program (CRP) at more than 44,000 Natural Resource Inventory sites in the Upper Mississippi River Basin. The estimated land use changes under the four policies are incorporated into a physical model to assess their impact on nitrate-N concentrations in the Mississippi River. Results suggest that the fertilizer-use tax is much more cost-effective than the three conservation easement policies. Incentive payments for conservation tillage are most cost-effective among the three conservation easement policies, but can reduce nitrate-N concentrations only to a limited level. The potential for incentive payments for corn-soybean rotations is even more limited as an instrument for reducing nitrate-N concentrations in the Mississippi River. These payments also impose a higher cost to society than payments for conservation tillage. Payments for cropland retirement can be used to achieve the largest reduction in nitrate-N concentrations, but also impose the largest cost to society among the four policies considered in this paper. Results also suggest that, in contrast to previous studies, the targeted fertilizer-use tax reduces the aggregate farm profit loss under the uniform fertilizer-use tax by up to 30 percent.


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