Modeling fertilizer externalities around Palo Verde National Park, Costa Rica

Irrigated rice farming in Costa Rica involves use of agrochemicals that pollute important wetlands ecosystems, such as the Palo Verde National Park in the northeastern province of Guanacaste. We characterize rice farming in this region, apply duality theory to estimate conditional factor demand for fertilizer, and then simulate the impacts of alternative policies on fertilizer use. Using a normalized profit function. we also estimate policy impacts on farmer profits. As expected, prices of rice seeds and fertilizer significantly affect use of fertilizer. Price incentives or taxes could encourage farming practices that reduce the threat to downstream ecosystems.