Regulating Pesticides (1980) / Chapter Skim
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5. Benefit Assessment
5. Benefit Assessment
Pages 99-130
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From page 99... ...
Moreover, analyses of the economic and social impacts of pesticide regulatory actions are required by the FEPCA of 1972 and its subsequent amendments. The purpose of this chapter is to examine critically the current USDA/EPA approach to assessing the benefits of pesticide usage and, where appropriate, to recommend certain changes in that approach.
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From page 100... ...
First, a benefit assessment should attempt to measure the "real" (or economic efficiency) benefits of a pesticide that is, the extent to which use of a pesticide contributes to the available quantity of desirable goods and services, thereby enhancing society's standard of living.
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From page 101... ...
These two components pesticide productivity and cost savings-are brought together in the third section, which presents appropriate methods for measuring the real benefits of pesticide usage and for distributing both real and pecuniary erects among certain key groups. Our critical evaluation of the methods currently employed by USDA/EPA economists to assess benefits of pesticide use is based upon a review of several actual benefit assessments, namely, those for chlorobenzilate (Luttner 1977a, by, DBCP (U.S.
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From page 102... ...
CURRENT APPROACH: METHODOLOGY AND DATA The USDA/EPA procedure for evaluating the productivity of an agricultural pesticide concentrates on quantifying the pesticide's ejects on crop yield or output. The possibility that quality ejects may also be important is, of course, recognized in the USDA/EPA benefit assessments; however, data are generally inadequate to quantify such ejects.
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From page 103... ...
Benefit assessments currently place excessive reliance on "data," often unpublished, and sometimes contained in controversial reports, that have not been subjected to conventional scientific tests of validity. The credibility of a benefit analysis depends ultimately upon the credibility of the data that support it.
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From page 104... ...
experience. After the published literature has been searched thoroughly, it might prove useful to consult some unpublished sources in the form of unpublished reports or perhaps the firsthand knowledge of pest control specialists.
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From page 105... ...
ESTIMATING CHANGES IN PEST CONTROL COSTS CURRENT APPROACH The second key component of a benefit analysis is an assessment of the erect that withdrawal of an RPAR chemical would have on pest control costs. (Other costs of cultivation or production may also be important and are considered later in this chapter.)
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From page 106... ...
First, the imprecision of many of the estimates is obscured by the practice of reporting point estimates rather than interval estimates. As a general rule, oPP's benefit assessments should be more forthright about the uncertainty surrounding the estimates by reporting plausible minimum and maximum values along with the most-probable estimates for key variables.
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From page 107... ...
That is, the increase in base acres treated with the jth alternative (AA,) following cancellation of a suspect pesticide should be presumed to equal AAj = Pj Ok, where Ak is total base acres treated with the RPAR chemical, end pj is the ratio of (1)
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From page 108... ...
. The operational benefit measure currently used in the USDA/EPA assessments is the saving in pest control costs arising from continued use of the RPAR pesticide plus the value of the output that would be lost without the RPAR chemical.
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From page 109... ...
It is often necessary to rely upon qualitative assessments because data are either nonexistent or inaccessible, or time and resources are inadequate to undertake quantitative analyses. In some instances the benefit assessments intermix estimates of the real benefits of a compound with estimates of the monetary gains and losses associated with use of the compound (see, for example, USDA et al.
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From page 110... ...
For the most part, the quantitative USDA/EPA assessments assume that the burden of a regulatory decision will be borne largely by the users of the RPAR pesticide. The impacts of a regulatory decision on consumers or nonusers of the RPAR pesticide are usually discussed in qualitative terms, although in a few instances, such as the DBCP citrus assessment, the erects of alternative regulations on consumers and nonusers are analyzed quantitatively.
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From page 111... ...
When these factors are important, allowance must be made for them or the benefits will be understated. The value of productive resources saved can be expressed as: TCs- TC,, where TO is the total economic cost of producing X, the output that would be produced in the absence of the suspect chemical; and TCr is the total economic cost of producing Xr, the output forthcoming with continued usage of the RPAR pesticide.
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From page 112... ...
can be expressed as the change in pest control costs plus the change in other production costs. The conventional measure for the value of increased output associated with use of an RPAR pesticide is the total willingness to pay for that additional output.
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From page 113... ...
In the preceding discussion we have neglected these costs, as do the USDA/EPA benefit analyses. In principle, such costs would have to be taken into account for the benefit measure to be fully consistent with conventional benefit-cost measures of economic efficiency ejects.
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From page 114... ...
Returning to the comparison of Equations 5.1 and 5.2, we note that the USDA/EPA operational benefit measure proxies the change in total production costs, TCS- TCr, with an estimate of the change in total pesticide treatment costs, PCa- PCr. The approximation to the actual change in total production may be defensible on the grounds that the change in total pesticide treatment costs can be estimated more easily
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From page 115... ...
Another conceptual problem with the USDA/EPA proxy for PCa- PCr, the change in pest control costs resulting from a regulatory action, also arises from the commonplace assumption that the number of acres treated remains unaffected by the regulatory decision. In fact, if the regulatory action occasions higher per-unit production costs and, ultimately, higher output prices, quantity demanded will decline (other things being equal)
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From page 116... ...
At the same time, their approach to measuring changes in pest control costs (xPCe - PCr ~ has the potential of overstating the true value for this eject and, with it, the true value of the benefits from the RPAR chemical. Another potential difficulty with the USDA/EPA operational benefit measure is that their estimates of Pr Xr- Pa X`, a major component of willingness to pay for the additional yield allowed by the suspect pesticide, also tend to be biased upward.
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From page 117... ...
, the USDA/EPA approach tends to overstate both of these benefit components. On balance, the combination of biases working in different directions and the uncertainty about the bias associated with (OC,'- °Cr ~ imply that the EPA/USDA benefit estimator has the potential for either understating or overstating the true benefits of the RPAR pesticide.
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From page 118... ...
Treatment of Uncertainty The only important change recommended in the USDA/EPA approach to dealing with uncertainty is to recognize openly the uncertainties surrounding the estimates presented and to indicate ranges of values, surrounding the most-probable estimate, within which the analysts feel some confidence that the true values lie. An ideal to strive for is the 90 percent confidence interval, even though such statistical precision will rarely be attainable.
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From page 119... ...
This measure would help to differentiate between the value of compounds with similar annual benefits, but with different expected useful lives. Distribution of Gains and Losses The USDA/EPA benefit assessments are directed more toward measuring the distributive erects of a regulatory action (especially as the elects relate to the pesticide users)
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From page 120... ...
Suppose that a regulatory action against the RPAR pesticide raises production costs and results eventually in a new equilibrium price and quantity of Pa and I, respectively. Total revenue is now B + C + E + F + H; total cost is C + F + H; producers' surplus is B + E; and consumers' surplus is area A
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From page 121... ...
If the users of the RPAR pesticide are few relative to the total market, the regulatory action is unlikely to affect output prices. In this case, only the users suffer losses, which would be measured by their forgone economic profits (rather than revenue reductions)
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From page 122... ...
Thus, the USDA/EPA quantitative benefit assessments tend to overstate the losses suffered by users of a cancelled (or otherwise regulated) pesticide.
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From page 123... ...
Unfortunately, several of the benefit assessments have failed to spell out clearly the fact that gains to growers may entail losses for consumers. For instance, in the endrin/apple assessment (endrin is used in apple orchards to control voles)
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From page 124... ...
124 a Cal so 0 O :O U
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From page 125... ...
125 Io oo ~ ~ .
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From page 126... ...
Decrease in lint sales Decrease in seed production a Value of substitutea Added cost of weed control Reduced variable cost on acres shifted Net monetary cost to users To other cotton producers: Increase in gross sales 1637 million lb at $0.115 To consumers (foreign and domestic) : Increased cost of output purchased 4829 million Ibat $0.115 With Trifluralin 3766 $0.60 2260 Loss in value from output restriction 574 million lb at (0.60 +0.715)
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From page 127... ...
. A final recommendation concerns the presentation of results of benefit assessments.
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From page 128... ...
The Committee recommends that tables similar to Table 5.2 be routinely included in the benefit assessment reports.
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From page 129... ...
(1977c) Preliminary Benefit Analysis of Endrin Use on Apple Orchards.
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From page 130... ...
Department of Agriculture (1978c) Preliminary Benefit Analysis of Lindane.
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