The Phantom Menace in Agriculture: How Lagged Droughts Distort Input Decisions and Create Environmental Deadweight Loss

Sun, Dingqiang and Qie, Xueting and Huang, Kaixing (2025): The Phantom Menace in Agriculture: How Lagged Droughts Distort Input Decisions and Create Environmental Deadweight Loss.

Abstract

The overuse of chemical fertilizers is a global problem that has led to a series of adverse effects on the environment and human well-being. This study identifies a novel cause of fertilizer overuse: farmers’ irrational responses to lagged droughts. Employing unique plot-level data from maize production in China, we find that while drought shocks in any given year are independent, a drought in the previous year increases fertilizer use in the current year by 14.2%, with no positive effect on yield. A simple extrapolation suggests that this irrational response to lagged droughts causes an annual total fertilizer overuse of 1.1 million tons in China. This could translate to a monetary cost of 486 mil lion USD, drinking water pollution of 2-6 billion cubic meters, and carbon emissions of 8.9 million tons. Fertilizer overuse is expected to increase substantially under future climate change scenarios. We identify investment in irrigation, land consolidation toward high-productivity farmers, and the promotion of drought-tolerant crop varieties as key approaches to mitigating drought-induced fertilizer overuse.

• Item Type: MPRA Paper
• Language: English
• Keywords: drought, irrational response, fertilizer overuse, environmental pollution
• Subjects: D - Microeconomics > D9 - Intertemporal Choice > D91 - Intertemporal Household Choice ; Life Cycle Models and Saving; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q12 - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q15 - Land Ownership and Tenure ; Land Reform ; Land Use ; Irrigation ; Agriculture and Environment; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q18 - Agricultural Policy ; Food Policy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate ; Natural Disasters and Their Management ; Global Warming

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