Incorporating the environmental consequences in the fertilizer use decision

The increase in the use of fertilizer in agricultural production has been associated with a substantial increase in agricultural productivity in the US. This increase in fertilizer use has been driven by a variety 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 are not reflected in the costs and returns of agricultural production. That is, externalities exist whose cost need to be internalized. Because 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.