Using Farmers’ Actions to Measure Crop Loss Due to Air Pollution

The effects of ozone on the profitability of Illinois cash grain farms is investigated by utilizing a profit function framework. This approach uses individual farms as the observational unit so the data are generated under field conditions. Hence, experimental plot data are not used although results from past biological experiments are utilized to frame initial hypotheses and for evaluation of the estimated model. This study demonstrates the benefits of combining economic data and biological science results to estimate the economic reactions of producers in terms of input and output (production) response to an ambient environmental characteristic. A time series of cross sectional data on cash grain farms in Illinois is used to estimate two profit functions. Ozone data are measured on a growing season basis by county. The estimated model shows ozone has a negative effect on profits. Increases in ozone levels tend to depress output levels and lessen the demand for variable inputs. Additionally, a production function is derived from one of the profit functions. The impact of ozone is found to be in general agreement with dose-response data obtained in Illinois by plant scientists.