Journal #J-07/1999
Optimal Self-Protection from Nitrate-Contaminated Groundwater
Richard Ready(1) & Kimberly Henken(2)
Department of Economics & Reesource Management Agricultural University of Norway PO Box 5033, N-1432 Ås, Norway http://www.nlh.no/ior/

(1) Richard Ready is currently at the Dept. of Agricultural Economics and Rural Sociology, Penn State University, (http://www.aers.psu.edu/),
e-mail: rready@psu.edu

(2) Kimberly Henken is at the Cooperative Extension Service, University of Kentucky

Ready, R.C. & K. Henken (1999): "Optimal Self-Protection from Nitrate-Contaminated Groundwater", American Journal of Agricultural Economics, 81(2):321-324.

Abstract:
Self-protection by well owners from potential nitrate contamination is modeled as an optimal stopping problem, where an owner sequentially tests the well and uses the test results to update his or her subjective probability that the well is contaminated. Because nitrate concentrations in a well vary over time, a single test contains limited information about whether the well is contaminated. The optimal self-protection strategy may therefore involve multiple tests or may not involve any tests at all. For Kentucky wells, optimal self-protection reduces a well owner's expected damage from nitrate contamination by 38%, relative to taking no action.

Key words: Agriculture, groundwater, nitrogen, sequential probability ratio test.

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