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The Future Role of Pesticides in US Agriculture
P0A0A1P1. It represents the reduced expenditures associated with prior production quantities and some of the added value associated with increased consumption of pesticides. The sum of the consumers' and users' surpluses from the use of strategy 0 is measured by the area GA0C0, and the output market surplus with strategy 1 is GC1A1. The effect of the introduction of the supply-increasing strategy is to increase CS and the overall surplus in the output market (the net market effect on producers and consumers is given by the area A0A1B in Figure 5-1), but the impact on US, as mentioned earlier, is unclear and might be negative.
Some special CS considerations associated with pest-control strategies are the following:
Product Quality. Pest-control strategies can affect consumer welfare by increasing product quality. Babcock et al. (1992) found that the impact on apple quality accounted for at least 33 % of the benefit of fungicides used on apples in North Carolina. Consumers will pay much more for produce that is available earlier in the season, has higher sugar content, and is without blemishes. The method of hedonic pricing by Rosen has been introduced to estimate the price effect of improved product characteristics (see Cropper et al. 1988, Parker and Zilberman 1993).
The impact of higher product quality can be represented by an outward shift of the demand curve. For example, if an increase in sugar content will increase the value of consumption by 5 % per unit, the demand curve will shift upward appropriately because consumers will be willing to pay a higher price for every level of quantity demanded. As shown in Figure 5-2, a shift from the initial strategy (strategy 0) to a new strategy that increases quality but has the same supply costs (strategy 1) will shift demand from D0 to D1. The output price will increase from P0 to P1, and output will increase from Y0 to Y1. The overall increase in the output market surplus in this case will be equal to the area C0A0A1C1 in Figure 5-2. The analysis suggests that assessment of the impact of pest-control strategies should quantify the product-quality effect and assess its influence on production, prices, and overall welfare.
Dynamic Considerations. An assessment of impact of pest-control strategy on consumer welfare must recognize that the impact changes over time. If Cst is consumer surplus at year t, CS associated with a given pest-control strategy is a discounted sum of surpluses over the years and can be written as
The price effect of the pest-control strategy can change over time. For example, if a new supply-increasing strategy is introduced, adoptions in