The research objective is to
present by employing dynamic economic model, the negative external effects of
nitrogen fertilizers on the groundwater quality. The research compares the
"private" solution of a profits - maximizing farmer, who ignores the
negative external effects in using nitrogen fertilizers, to that of a social
planner (with and without groundwater cleaning process), who takes into account
these externalities in maximizing social welfare. The research focuses on
finding an optimal social steady - state equilibrium. The analysis is applied
to corn production in the Rehovot region that lies above the coastal aquifer.
The solution identifies an optimal economic balance between two economic
components costs: (1) The costs of cleaning drinking water from the
aquifer after they have been contaminated beyond the quality standard
("environmental cleaning cost") and (2) profits losses to
farmers, due to restrictions imposed on using nitrogen fertilizers.
("environmental contamination prevention costs").
This research model provides
decision makers with an economic tool, to deal with the conflict between the
need for nitrogen fertilizers in agricultural production and the requirements
for clean groundwater.