Determining socially optimal rates of nitrogen fertilizer application

Effective management of nitrogen (N) fertilizer is central to enhancing agricultural productivity, while improving water and air quality and mitigating climate change. Quantifying “socially optimal” rates of N fertilizer (i.e. maximizing net benefits to society while minimizing social costs) is a key component of any regulatory or incentive program designed to better manage N application. Here, we estimate spatially-explicit socially optimal N fertilizer application rates for corn in Minnesota that account for uncertainty, both in valuation techniques and model parameters. We find that socially optimal rates of N fertilizer application are between 0 and 161 kg ha⁻¹, whereas the private optimum is 165 kg ha⁻¹. Choice of valuation methods shifts the spatial configuration and magnitude of the socially optimal N application rates illustrating the importance of valuation method and assumptions. Even after accounting for uncertainty in valuation methods, we find reducing rates of N fertilizer application offers significant opportunities to improve social welfare. By internalizing the social costs of nitrogen, net social benefits of N could increase by over $1100 ha⁻¹, even while accounting for declines in agricultural yields.