The Effects of Uncertainty on Optimal Nitrogen Applications

Abstract

Optimal nitrogen fertilizer rates for risk-neutral producers may increase if uncertainty about the weather or uncertainty about soil nitrogen levels exist. Decision criteria such as, "fertilizing for the good years" or "applying a little extra fertilizer just in case it is needed, " may be consistent with expected profit maximization. These results contrast with the standard prescription that producers should reduce fertilizer applications because nitrogen fertilizer typically increases yield variance. The motivation for increasing nitrogen fertilizer applications is self-protection: farmers find it profitable to reduce the probability that they might be "caught short" of fertilizer.

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