A General Equilibrium Analysis of Pesticide Resistance

Pesticides have value because they help farmers control pests that destroy crops and decrease yields; however, their use will lead to insecticide resistance. In addition, their use has unintended other effects. These stem in part from pesticide residues on food and application drift that exposes humans and other non-target biologic populations to toxic agents. We analyze these interactions in a stochastic general equilibrium optimal control model. The necessary conditions of an optimal path are examined to identify the roles that Integrated Pest Management, spraying and pest resistant crops, and biological research can play along the optimal time path. Because the insecticides affect more than the target population, there are common property or externality effects. We identify expressions that can be used to formulate policies to adjust for these effects. Our results are consistent with the findings in the literature, and add some significant insights. These insights stem from our decomposition of the shadow values which identifies the expected values that can be estimated to estimate the shadow values. We then identify how to use these shadow values to correct the market signals for the common property effects.