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Optimal Self-Protection from Nitrate-Contaminated Groundwater

Richard C. Ready and Kimberly Henken
American Journal of Agricultural Economics
Vol. 81, No. 2 (May, 1999), pp. 321-334
Stable URL: http://www.jstor.org/stable/1244584
Page Count: 14
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Optimal Self-Protection from Nitrate-Contaminated Groundwater
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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.

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