Invited Presentation

Alternative Approaches toPesticide Regulation

Erik Lichtenberg

Pesticide regulation has become a topic of increas-ing interest in recent years, owing to rising publicconcerns about residues on foods, in drinking-water wells, and damage to wildlife. Public-opinion polls and political responses to incidentslike the controversy over Alar suggest that demandfor government intervention to protect publichealth and the environment from pesticides is high.Pesticides are toxic by design; survey evidence in-dicates that they are perceived as riskier than other,more common pollutants like auto exhaust (see,for example, Horowitz). Pesticide residues are noteasily observable (short of laboratory analysis),making averting strategies by individuals ex-tremely difficult ancl/or excessively costly to im-plement.

Most economists studying macro-scale issues ofpesticide regulation have focused their attentionon decisions about whether to allow the use (cancelthe registration) of specific chemicals or classes ofchemicals. For example, Knutson et al., andOsteen and Kuchler studied the effects of eliminat-ing pesticide use on major crops in the U.S. Zil-berman et al. examined the likely effects of Cali-fornia’s’ ‘Big Green” initiative, which would haveeliminated the use of many widely used chemicalson five major fruit and vegetable crops in thatstate. Cropper et al. investigated the political eco-nomic factors determining Environmental Protec-tion Agency (EPA) cancellation decisions.

This emphasis on registration decisions is un-derstandable: Bans are the most dramatic, visibletool of pesticide regulation and thus engender themost controversy. But the reality of pesticide reg-ulation is more complex. Pesticide regulation as it

exists today utilizes a number of policy instru-ments other than all-or-nothing registration/cancellations or even other forms of direct restric-tions on pesticide use. Moreover, even though ournatural inclination is to concentrate on the totalamount of pesticides applied, timing of applicationand the form in which the pesticide is applied areoften equally important in terms of both produc-tivity and negative spillovers.

This paper discusses some strengths and weak-nesses of alternative approaches to pesticide regu-lation. It begins with a brief description of thegoals of pesticide regulation and the various policyinstruments used to address those goals. It thenturns to alternative types of policies, such as pes-ticide taxes, liability law, and provision of infor-mation, and considers their potential for meetingthe goals of pesticide regulation. Finally, it dis-cusses needs for economic research in light of cur-rent knowledge about these alternatives.

Goals of Pesticide Regulation

Pesticides are regulated by the EPA primarily un-der two statutes: the Federal Insecticide, Fungicideand Rodenticide Act (FIFRA), most recentlyamended in 1988, and the Federal Food, Drug andCosmetic Act (FFDCA). FIFRA governs pesticideuse directly, while FFDCA affects it indirectly bygiving EPA the authority to set tolerances for res-idues on foods.

Pesticide regulation is mandated to provide pro-tection for (1) pesticide users, (2) the health andsafety of humans exposed to pesticides, and (3)wildlife and the environment.

Erik Lichterrberg is an associate prufessor, Department of Agriculturaland Resource Economics, University of Maryland at College Park. I amgrateful to John Horowitz for numerous insightful comments, aftboughthe usual disclaimer of responsibility applies. Thk research was sup-ported in part by the Economic Research Service, U.S. Department ofAgriculture, under cneperative agreement 58-3AEM-8-C065.ScientificArticle no. A-6364, Contribution no. S54Sof the Maryland AgriculturalExperiment Station.

1There is a voluminous literature on the farm-level economics ofpesticide use. Here we refer only tn studies that have examined pesticidepolicy at the national level.

Pesticide-User Protection

The purpose of the original FIFRA legislation wasto ensure that the chemicals farmers were beingsold were actually effective in controlling the spe-cific pests they were purported to. This function ofregulation may be important for health and safety,as well as for permitting efficient use of materials.

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For example, Boardman attributes many of thehealth and safety, and environmental problems as-sociated with pesticide use in Malaysia to the factthat farmers are sold mislabeled and adulteratedchemicals,

Market failures in this regard arise from the factthat product quality cannot be observed withoutexcessive cost. Thus, the goal of policy is to setupmechanisms that ensure that farmers know whatthey are purchasing.

Ecological Protection

Pesticides are designed to be toxic to living organ-isms. Because pesticide production is character-ized by high fixed costs of research and develop-ment, most pesticides marketed affect a broadspectrum of organisms. Thus, it is not at all sur-prising that pesticides could have adverse effectson nontarget species. Adverse ecological effectsrange from acute (e.g., fish kills from runoff ofsynthetic pyrethroids or spills; bird kills from con-sumption of granular soil insecticides or exposureto drift and residues; bee kills from exposure todrift) to long-term effects, such as the declines inbird populations caused by bioaccumulation ofDDT and similar persistent compounds.

Ecological damages from pesticides are exter-nalities, since the bulk of the damage is borne bydisparate members of the general public rather thanthe farmers using the pesticides. The solutions tothese problems are necessarily collective and gen-erally require public intervention due to high trans-action costs of organization and free-riding. It isimportant to recognize that the extent of damage isaffected by the types, formulations, and timing ofapplication of materials used, as well as by thetotal amount of material applied.

Protecting Human Health and Safety

Many pesticides are toxic to humans to some de-gree. Workers are exposed to pesticides duringproduction, mixing and loading, application, orfield work; the general public may be exposed viaaerial drift, drinking water (leaching of pesticidesinto groundwater or runoff into surface water), orresidues on foods. Acute poisonings among farmworkers are well documented (see, for example,Coye), as are some cases of long-term hazardsamong chemical plant operatives (e.g., sterilitycaused by DBCP, cancer caused by chlordime-form). Animal bioassays suggest that pesticidesmay have other long-term (chronic) effects, suchas cancer, birth defects, and genetic damage, al-

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though this evidence is controversial (see, for ex-ample, Ames, Magaw, and Gold).

Worker safety and general public health prob-lems differ in fundamental ways. It can be arguedthat the central market failure in worker safety isthat workers may not be fully informed about therisks posed by the chemicals they are exposed to,hampering their ability to bargain over an adequatewage premium. Exposure of the general public isan externality problem in which privately orga-nized solutions tend to be ruled out by the highcosts of providing information, as well as by costsof organizing and free-riding.2

Dynamic Concerns

Because it must balance the risks and benefits ofpesticide use, EPA’s regulatory decisions are de-termined in large measure by the pest-managementalternatives available. One of EPA’s long-rungoals is, thus, to encourage the development ofsafer pesticides or pest-management technologiesthat will allow it to increase the extent to which itprotects human health and the environment.

Instruments of Pesticide Regulation

EPA uses multi~le ~olicv instruments to meetthese multiple g~als ~f p&ticide regulation. Theset of usable instruments is, of course, circum-scribed by the legislation governing pesticide reg-ulation, mainly FIFRA and FFDCA.

The main context in which EPA exercises reg-ulatory authority is registration. FIFRA requiresthat pesticides be registered in order to be mar-keted. The conditions under which a chemical isregistered specify (1) the crops it can be used on,(2) the areas (usually states, sometimes counties)in which it can be used for each crop, (3) thespecific pests it can be used for on each crop ineach area, (4) maximum allowable applicationrates by pest, crop, and area, (5) required safetyprecautions, and (6) specific restrictions on croprotations, time of use, etc. According to FIFRA,these conditions of use must be such that the ben-efits from use of a pesticide outweigh the risksposed to the environment and to human safety andhealth. Benefits under FIFRA refer to consumer

2 For example, it is extremely costly—and in some cases, technicallyinfeasible-to analyze the residues of all the pesticides used on any givenfood or potentially occurring in drinking water. Labeling all of theseproducts is also extremely costly. These issues are discussed at greaterlength below.

L.ichtenberg Alternative Approaches to Pesticide Regulation 85

and farmer income; profits for the pesticide indus-try are specifically excluded from consideration.

The registration process begins when a manu-facturer or formulator submits a request, alongwith specific data concerning effectiveness, envi-ronmental fate and transport, and acute andchronic toxicity for wildlife and humans.3 EPAcan approve the request, disapprove it, or requirethe registrant to alter it in specific ways. If theregistration is not approved, the registrant may re-spond with alterations of its own. The pesticideindustry is relatively highly concentrated; there areonly a few firms developing pesticidal chemicals.Large investment requirements in R&D, the dom-inant component of cost, deters entry. The risk-benefit balance of any given chemical, which de-termines EPA’s regulatory posture, is conditionalon the availability of substitutes and is thus ame-nable to strategic manipulation by manufacturers.As a result, the outcome of registration is the resultof a bargaining process between EPA and the reg-istrant, rather than a unilateral decision made byEPA.4

The registration process permits the use of anumber of different kinds of restrictions on pesti-cide use; all are standards (quantity controls) ratherthan market incentives. They include the follow-ing.

Quantity Restrictions

The best-known restriction on the quantity of pes-ticides that can be used is the all-or-nothing deci-sion about whether to register a pesticide, that is,whether a pesticide can be used in the U.S. FIFRAalso gives EPA latitude to engage in some fine-tuning by allowing it to alter the maximum appli-cation rate and number of treatments allowed per

3 Two other imp+mtarrtprocesses arc the current re-registration processand the ongoing special-review process. The former aims at bringingregistrations of pesticides that have been used for a long time up tocurrent standards. The latter is concerned with pesticides currently in usewhich new information indicates may prise unforeseen problems. Pro-cedural differences between these two and the registration process fornew pesticides are not important for the dkcussion here.

4 The case of the EBDC fungicides illustrates this. When EPA an-nounced it was reviewing the registration of this family of pesticides dueto new information about risk, the industry responded by proposingvoluntary cancellations on a sufficient number of crops to reduce esti-mated dietary risk to a level acceptable to EPA. EPA, too, had a pre-liminary list of potential cancellations-which differed substantiallyfrom the industry’s. EPA ranked crops on the basis of grower and con-sumer welfare, while the industry ranked them according to ita ownrevenues. The two lists differed because there were more alternativesavailable (hence benefits to growers and consumers were lower) for thecrops that generated the most revenue. These differences were largelyrendered moot by market-basket studies that showed much lower resi-dues than EPA had assumed originally; but EPA would have had toaccept much or all of the indus@ list had the data supported the originalrisk estimates.

season, and by permitting registration in some re-gions and not others. However, this flexibility islimited. For example, EPA can discriminateamong farms only on a regional (state, county)level, even though in many cases discriminatingamong individual farms would be preferable. EPAalso has relatively little control over maximum ap-plication rates and numbers of treatments allowed:Manufacturers set them to ensure adequate perfor-mance of the pesticide under unusually bad condi-tions as a way of protecting themselves againstliability for damages suffered by farmers with badinfestations and are thus reluctant to accept sub-stantial reductions.

Worker-Protection Measures

EPA can require specific worker-protection mea-sures as a condition of registration. Farmers maybe required to provide workers with informationabout the risks of pesticides and to notify themabout the presence of residues in treated fields.EPA may also require the use of protective cloth-ing or impose restrictions on production activitiesafter treatment. For example, it is illegal to sendworkers into fields for a specified period of timeafter application of pesticides that pose high risksof poisoning. This form of regulation introducesrigidities in scheduling farm operations that affectthe types of material chosen, application rates, andtiming of application (Lichtenberg, Spear, and Zil-berman).

Other Production Restrictions

As part of the registration process, EPA can spec-ify the types of formulations that can be used (e,g.,granular versus spray), impose restrictions on croprotations, and set other conditions that alter theincentives for choosing one chemical or applica-tion method over another. For example, EPA re-cently cancelled the registration of granular formu-lations of the insecticide carbofuran because ofbird kills; spray formulations remain in legal usebecause they do not pose the same risk. EPA pro-hibits feeding unused portions of crops (vines,straw, hulls) to animals after treatment with certainpesticides (e.g., aldicarb), In some cases wherepesticide residues remain in the soil for more thanone season, EPA can restrict the types of crop thatcan be grown in seasons after the pesticide wasused. For example, EPA forbids planting numer-ous food crops for six months after the last treat-ment with aldicarb. These types of regulation canaffect the selection of specific chemicals, types offormulation, and timing of application.

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Residue Tolerances

Regulation under FFDCA is aimed at protectingconsumers of foods treated with pesticides frompotential health effects from ingestion of pesticideresidues or metabolizes. EPA does this by setting atolerance specifying the maximum concentrationof a pesticide residue that may occur on foods. 5Residue tolerances are enforced by a Food andDrug Administration inspection program; foods vi-olating residue tolerances are seized. The residuetolerance for pesticides not registered for use in theU.S. is automatically set at zero. If a pesticidedoes not degrade completely by the time the cropreaches the market, the residue tolerance effec-tively sets an upper bound on the amount appliedand/or the timing of application. Foster and Bab-cock analyze the case of maleic hydrazide on to-bacco, in which residue standards (on exports toGermany) are a binding constraint determining ap-plication rates.

Signals from Registration Decisions

To date, EPA’s principal attempts to influence pes-ticide R&D have come indirectly through the sig-nals it sends in making registration decisions. DDTprovides a case in point. In banning DDT (and theentire family of chlorinated hydrocarbons in agri-culture), EPA indicated that long-lived chemicalshad too great a potential for long-run environmen-tal damage to be allowable; that is, only relativelyshort-lived chemicals would be registered in thefuture. EPA is currently discussing the potential ofmore direct incentives for R&D using such instru-ments as expedited registration or waivers for cer-tain testing ;equireme;ts forset of specific criteria.

Limitations of the CurrentRegulatory Framework

pesticides meeting a

The preceding discussion indicates that the currentframework for pesticide regulation does not consistsimply of a broad, all-or-nothing decision aboutwhether or not to register (or cancel the registration

5 In most cases, pesticide residues on foods are regulated under Sec-tion 408 of FFDCA, which mandates that tolerances be set to balance therisks and benefits of pesticide use. In the relatively infrequent number ofcases where the concentration of residues increases durins processing,pesticides are classified as food additives and are regulated under Section409, the Delaney Clause, which prohibits the use of any substanceknown to cause cancer in humans or animals but uses risk-benefit bal-ancing for other types of heafrh effects. For further discussion, seeNational Academy of Sciences,

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of) a chemical. This framework does possess aconsiderable degree of flexibility in that usage re-strictions can be calibrated to specific regions andin that instruments like re-entry regulation, rota-tional restrictions, and residue tolerances can alterincentives affecting the choice of type of pesticide,formulation, and timing of application.

There does remain the question of whether thisframework is sufficiently flexible. Put anotherway, does this set of instruments correspond to theoutcome of a general social optimization model?Would maximizing social welfare give a set ofinstruments with precisely these characteristics?

The type of solution corresponding to the cur-rent framework is one with a lot of corner solu-tions, that is, one dominated by the registration/cancellation decision. Loosely, cancellation or de-nial of registration is optimal in cases where theexpected value of marginal damage to humanhealth and the environment caused by small usagelevels is large enough that it always exceeds themarginal contribution to national income. Regis-tration without restriction is warranted wheneverthe opposite holds.

By and large, pesticide regulatory decisionsmade to date fit this characterization reasonablywell. The benefits of pesticide use tend to be smallwhenever many substitutes are available, either al-ternative chemicals or land or labor (Zilberman etal. ). Most of EPA’s cancellation decisions haveinvolved chemicals for which substitute chemicalsof comparable efficacy and cost were available.For example, when DDT was cancelled, farmerswere able to switch to alternative insecticides thatwere roughly as effective and as cheap. Cottongrowers, for one, had been shifting steadily awayfrom DDT into organophosphates by the time thatDDT was cancelled, primarily because of thespread of resistance to DDT (Carlson 1979). Fur-thermore, most major crops have been in chronicexcess supply due to farm commodity programs(Lichtenberg and Zilberman 1986b). The fact thatthere is ample land to bring into production as asubstitute for pesticides on major crops (see, forexample, Knutson et al.) also suggests that themarginal benefits of many cancelled pesticideswere low. Thus, the social-welfare losses fromcanceling the registrations of many pesticideshave probably not been large.

In some cases, though, pesticide use may bothcontribute substantially to national income andpose significant risks to human health and the en-vironment. So-called minor-use crops (particularlyfruits and vegetables) come to mind in this regard,Commercial fruit and vegetable production islargely concentrated in a few places, and these

Lichtereberg Alternative Approaches to Pesticide Regulation 87

crops are highly vulnerable to pest damage. Inthese cases, pesticide regulation should attempt toreduce the amounts of a pesticide applied, orchange the formulation used or timing of applica-tion in a way that equates the expected value ofmarginal damage avoided with the marginal loss ofincome.

The capacity of the current framework to effectsuch changes in pesticide use is limited. Re-entryregulation can accomplish such changes in caseswhere worker protection is needed. Residue toler-ances and preharvest intervals may help protectconsumers exposed via residues on foods. But thecurrent framework does not possess mechanismsfor inducing marginal changes in pesticide use toprotect wildlife, prevent runoff into surface watersor leaching into groundwater, etc. One might thinkthat FIFRA does give EPA some flexibility in thisregard, for example, by allowing it to set maxi-mum application rates or numbers of treatmentsper season, As noted earlier, this option is usuallyinfeasible. Manufacturers set maximum applica-tion rates and numbers of treatments per seasonwith an eye toward preventing liability suits forproduct failure and thus calibrate them to ensureefficacy during exceptionally severe infestations.Similarly, FIFRA does not give EPA any mecha-nism short of cancellation to discourage the use ofhigh-risk chemicals.

Alternatives to Regulatory Standards

The limitations on the flexibility of the currentframework suggest that alternative mechanismsmight be useful in supplementing the instrumentscurrently in use. This section considers the poten-tial use of three types of policy instrument: liabil-ity, provision of information, and taxes.

Liability

There has been a resurgence in recent years ofinterest in liability as an alternative to environmen-tal standards and Pigouvian taxes. Segerson hasargued that making farmers or (with appropriateprovisions for diligence on the part of farmers)manufacturers liable for damages from groundwa-ter contamination will provide optimal incentivesfor pesticide use.

Liability is already a part of pesticide regulation:Farmers can sue manufacturers for poor productperformance. As noted above, potential liabilityconsiderations have tended to prevent manufactur-ers from lowering maximum label applicationrates. Thus, liability is useful in addressing one

class of goals of pesticide regulation, that of pro-tecting pesticide users. But what about the remain-ing goals—protecting workers, protecting thehealth of the public at large, and protecting theenvironment? The use of liability for ecologicalprotection is ruled out by the need to demonstratedamage to specific individuals. Wildlife and envi-ronmental systems are not private property, so nogrounds exist for seeking private remedies. Morebroadly, Menell argues strongly that liability is apoor instrument for rectifying externality problemssuch as environmental damage or health and safetyrisks to the general public caused by pesticide use.Proving a causal linkage between pesticide use byspecific individuals and damage to specific indi-viduals is virtually impossible; yet such linkagesare the fundamental basis of damage awards. Pro-cedural requirements make use of the tort systemdifficult, and use of the legal system is very costly.In practice, damage awards are so variable that it isdifficult to gauge how the incentives for pesticideuse are affected by the observed outcomes. Inshort, high transaction costs, overly stringent in-formational needs, and excessive variability injurybehavior make liability an unattractive policy in-strument for externality problems. Viscusi argueson similar grounds that the tort system is largelyunsuitable for dealing with occupational safety is-sues.6

Information

One can envision several ways in which the pro-vision of additional information could make it pos-sible for individuals to reach efficient solutions toproblems associated with pesticide use: (1) quan-titative information on efficacy (e.g,, comparativeyields) could help farmers select among pesticides;(2) information on the risks of pesticide exposurecould help workers bargain more effectively overproper compensating wage differentials; and (3)information on pesticides in drinking-water sup-plies or residues on foods could help consumersdetermine the appropriate averting behaviors. Onewould not expect the provision of information tobe of much help in reducing the risk of environ-mental damage external to the farm given the as-sumption that farmers determine pesticide use pat-terns out of self-interest.

6 Viscusi argues that workers’ compensation is more effective thantort liabMy for improving worker safety, citing econometric evidenceindicating that injury rates wouldbe fer higher in the absence of workers’compensation. A simulation study by Davis, Caswell, snd Hsrper sug-gests that experience-ratedworkers’ compensation would bean effectiveway of enforcing re-entry regulations for pesticides.

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Of these three, provision of information proba-bly has the greatest potential with respect to (2),worker safety. There is considerable evidence thatthe functioning of labor markets generates wagedifferentials that compensate workers for bearingexcess risk, at least for acute health effects. Thereis also evidence showing that workers respond tonew information in a way that is consistent withoptimizing behavior (Viscusi and O’Connor).Complete information about risk is, of course, anecessary condition for these wage differentials tocompensate workers fully.

Provision of more information will not neces-sarily lead to greater safety for farm workers. The-ory suggests that full information will permitworkers to obtain full compensation for bearingadditional risk on the job; these higher wages willinduce employers to enhance safety only if the sav-ings in wage premiums outweigh the cost of safetymeasures. Most farm workers are poor. Many areillegal migrants, earning far higher wages thanthey would expect to receive at home. It seemsplausible that most would demand low compensa-tion for risk-bearing relative to workers who arebetter off, suggesting further that job safety wouldnot be affected much by additional information.

There are also theoretical grounds for question-ing the efficacy of information in enhancingworker safety. Complete information may not besufficient because workers may not be fully ratio-nal, in the strict economic sense of the term. Forexample, Akerlof and Dickens demonstrate thatcompensating wage differentials do not arise incases where workers exhibit cognitive dissonance.It is also not clear whether workers fully take intoaccount chronic risks in wage bargaining.

In sum, it seems that providing workers withinformation about the health risks of the chemicalsused, about application rates, and about likely ex-posure could be an important adjunct to currentpesticide policy, rather than a substitute for directregulation. The regulations on worker safety re-cently issued by EPA do call for greater notifica-tion, although they fall short of full disclosure;interestingly, the farm community argued stronglyagainst notification on the grounds of excessivecost .

EPA’s ability to provide farmers with efficacyinformation is more problematic. The value ofhaving such information is attested to by the suc-cess of integrated pest management programsacross the country. The issue for EPA is whether itcan play a role by requiring manufacturers to pro-vide such information as part of the registrationprocess. There is good reason to believe that thisinformation is best generated and disseminated at

the regional or local level. Pesticide effectivenessdepends heavily on environmental conditions suchas temperature, rainfall, initial pest populationsizes, population sizes of predator or competitorspecies, and so on. Effectiveness varies across pro-duction regions as well as from year to year. Fac-tors that are important in one area may not beimportant in another area. Furthermore, trainingmay be needed to give farmers sufficient under-standing to utilize a more information-intensivepest-management strategy (Pingali and Carlson);training requirements, too, are likely to vary acrossregions. Efficacy information presented from a na-tional perspective would likely be either overlysimple or overly complex.

It is well known that averting behavior is gen-erally an important component of efficient solu-tions to externality problems (Cease; Olson andZeckhauser). Providing consumers with informa-tion about pesticide residues in drinking water oron foods could enable them to engage in efficientaverting behavior and might make socially effi-cient pesticide regulation possible. However, thecosts of providing this information are likely to behigh. First, testing water or produce for all thepesticides of potential concern is extremely expen-sive when feasible and often can be done only bya few advanced analytical chemistry laboratories;for example, a key component of EPA’s recentsurvey of pesticide residues in groundwater wasthe development of analytical methods for testingmultiple residues. Most laboratories are notequipped to conduct such tests. Residue levelsvary over time (groundwater) and shipments ofproduce, so continuous testing would be neces-sary. Publicizing this information, for example bylabeling produce, is also likely to be costly. This isparticularly true for foods, since the produce soldat the retail level generally comes from many dif-ferent growers, each using a somewhat differentmix of pesticides; thus, labeling would be difficultand expensive to implement. Finally, consumerswould need to invest substantial time and effort indeveloping the necessary information base andskills for processing this information; this, too, islikely to be a very costly activity,

Another alternative would be to test and labelproduce as simply residue-free,’ Experience withexperiments along these lines is not encouraging,

7 Yet another possibility would be to Iahel produce as meeting EPAstandards for residues in feeds. If afl produce marketed does meet thesestandards (as it should to be legally saleable), then this amounts toproviding additional information about current regulation, rather thanbeing an alternative to that regulation, Such labeling could be warranted,but it is obviously not a substitute for direct regulation,

Lichtenberg Alternative Approaches to Pesticide Regulation 89

Several supermarket chains have experimentedwith this approach. Others have tried organic-produce sections. All seem to have abandonedtheir experiments due to lack of demand: Theredoes not appear to be a sufficient number of con-sumers willing to pay a high enough premium onproduce to justify the expense of testing and label-ing or of maintaining an organic-produce section.This does not mean that regulation is not at alljustified, that is, the costs of regulating residues onfoods outweigh the benefits. In the first place,these programs provide reductions in residues be-low the EPA’s residue standards. In the secondplace, marginal private testing costs (or additionalcost of producing and marketing organic food) arelikely to exceed the marginal costs of the nationalmonitoring program conducted by FDA. Thus,these experiences do not show that the costs ofFDA’s monitoring program outweigh the benefitsof meeting EPA’s residue standards, nor do theyrule out the possibility that more stringent residuestandards could be justified in some cases.

In sum, high transaction costs suggest that in-formation is a poor substitute for direct regulationin this context.

Pesticide Taxes

A third alternative to direct regulation is to imposePigouvian taxes, giving farmers an incentive toreduce pesticide use to socially optimal levels, AsZilberman et al. note, taxes permit greater flexi-bility than direct regulation. Carlson (1977) hasargued that pesticide taxes are preferable to directregulation in that they are likely to involve lesserror because (1) there is more uncertainty aboutmarginal damage from pesticide use than aboutdemand (marginal benefit) and (2) marginal dam-age is likely to be more inelastic than demand. 8

Taxes can affect whether a chemical will beused at all as well as application rates. A givenpesticide will be used by farmers for whom themarginal net benefit of zero use exceeds the tax,and each farmer will adjust pesticide use to equatethe marginal net benefit with the tax. Thus, taxesallow fine-tuning at the farm level, while directregulation can discriminate at best only down tothe county level. In contrast to direct regulation,taxes allow regulators to influence applicationrates in a continuous (rather than all-or-nothing)manner. Furthermore, taxes can be varied accord-

8 In Weitzman’s terminology, price inshuments lie tases are prefer-able whenever the benefits function has low curvature relative to the costfunction (pesticide demand is more elastic than damage); greater uncer-tainty about dumage increases thk advantage.

ing to indicators of environmental risk, such asleachability and acute or chronic toxicity, allowingregulators to influence farmers’ choices amongpesticides. Taxes of this kind would also exert in-fluence on pesticide R&D, thus addressing EPA’slong-run concerns.

In theory, taxes can substitute completely forusage restrictions. As a practical matter, setting theoptimal tax for each chemical remains problem-atic. Optimal Pigouvian taxes should be set to theexpected value of marginal damages at the optimallevel of pesticide use. But the expected value ofmarginal damages is difficult to quantify; cer-tainly, numerical estimates are not available. Thedifficulty is compounded by the fact that the opti-mal tax should vary across chemicals and regions,suggesting that computing these taxes may be ex-tremely costly. Furthermore, we have very littleevidence about the productivity of specific pesti-cides or about pesticide demand at the level ofindividual chemicals; yet this information is nec-essary to estimate optimal taxes.

Comparing ideal taxes to an admittedly imper-fect system of direct regulation is obviously unfair.A more reasonable comparison would be betweentaxes and direct regulation aimed at reducing thetotal amount of a pesticide used to a predeterminedlevel believed to involve acceptably low risks tohuman health and the environment. The key dif-ference here is that setting taxes requires informat-ion about pesticide demand, which direct regula-tion does not. The trade-off is that taxes are po-tentially more efficient and thus involve lowerlosses of income to achieve the desired level ofenvironmental protection. Whether this is true isan empirical question, and one worth investigat-ing.

There are forms of direct regulation for whichtaxes probably cannot substitute. Taxes cannot becounted onto alter timing of application: pesticidesare storable, so that purchasing and use decisionscan be separated in time. This suggests that taxescannot substitute for re-entry or preharvest inter-vals, or for residue tolerances, both of which areused to control timing of application and/or otherfarm operations.9

Implications for Economic Research

Pesticide regulation has assumed a heightened im-portance in recent years. As time passes, more and

9 A system of fines for excessive residues on feeds could be used forfeed safety but would not ensure the safety of harvest workers.

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more is known about the adverse effects of pesti-cide use, leading to increased demand for regula-tion. Pesticides seem to have captured the publicimagination as a major source of risk, further in-creasing demand for government intervention. Atthe same time, the re-registration process currentlyunderway at EPA has led to voluntary cancella-tions of many pesticide uses; this is particularlytrue for fruits and vegetables and other “minoruse” crops, in whose production pesticides play amajor role.

In this context, it is important to develop waysof improving the efficiency of pesticide regulation.The instruments currently used to regulate pesti-cides tend to permit relatively little flexibility. Thepredominant instrument is an all-or-nothing deci-sion about whether to permit use of a chemical.Selective registration by region or crop and alter-native instruments such as re-entry regulation orresidue tolerances give EPA some flexibility indealing with specific problems, but this, too, islimited.

This paper considers three alternative ap-proaches: liability law, provision of information,and taxes.

Liability law currently affects manufacturers’efforts to provide efficacious products, addressingone of EPA’s three main goals. It is unlikely to beof much use for dealing with externality or worker-safety problems.

Provision of information is likely to be mostuseful in addressing worker-safety issues: morecomplete information should, in theory, allowworkers to bargain more effectively over wage-safety trade-offs and thus be compensated ade-quately for the risk they bear (although greatersafety will result only if the increased wage differ-entials exceed the cost of enhancing safety). Theextent to which information can substitute for di-rect regulation, though, is not clear. We do notknow whether wage differentials compensateworkers for chronic risks, for instance. There isalso reason to believe that the illegal-immigrantstatus of many farm workers allows growers toexert market power. Many farm workers arepoorly educated; their ability to process risk infor-mation is also open to question. Finally, directregulation may prove to be less costly than provid-ing sufficiently complete information. In thk re-gard, it is noteworthy that growers oppose greaternotification during the recent negotiations overfarm-worker protection regulations. It would beinteresting to know whether they did so on politi-cal-economic grounds (because their own costswould be lower, for example) or because they feltthat direct regulation would be more efficient. Fur-ther research along these lines is needed.

Taxes appear to be the most useful instmmentfor either supplementing or replacing direct regu-lation in most instances. Properly calibrated taxesshould induce socially optimal application rates,At the very least, taxes can be used to meet thesame goals that direct regulation now does: suffi-ciently high taxes should eliminate the use of cer-tain pesticides except for emergency situations.Furthermore, varying taxes according to indicatorsof potential ecological or human-health damageshould encourage the use of safer pesticides anddiscourage the use of more hazardous ones, and, inthe long run, encourage R&D to focus on moredesirable pesticide characteristics. Taxes are prob-ably preferable to direct regulation in the second-best, Weitzman sense because pesticide demand ismost likely more elastic than marginal damagefrom pesticides and because uncertainty aboutdamage is large.

We do not, however, have an information basethat would permit us to implement pesticide taxes,even to achieve risk standards comparable to thoseused today in direct regulation. We know too littleabout the productivity of and demand for classes ofpesticides, much less individual chemicals. Weknow too little about substitutability between indi-vidual chemicals and between pesticides and otherfactors of production like land and labor. We knowtoo little about the expected value of external dam-ages from pesticide use. We probably know toolittle even to set targets for total applications in aregion in anything but a rather arbitrary way. Wedo know that all of these vary across regions andthat they are stochastic, making estimation morecomplex.

At present, estimates of pesticide productivityand demand are derived from the opinions of crop-production experts. These generally come in thewrong form to fit economic models: they are esti-mates of average, rather than marginal, changes inyield and cost due to registration or cancellation ofa chemical. Moreover, they are often distorted byspecial pleading (see for example Ayer andConklin). It would be preferable to have produc-tivity and demand estimates based on observed be-havior under field conditions, that is, econometricestimates. At the very least, such estimates couldbe used to validate expert opinion. There has beensome progress in this regard in recent years,mainly at the level of classes of chemicals. Lich-tenberg and Zilberman (1986a) developed a frame-work for understanding pesticide productivity, andBabcock, Lichtenberg, and Zilberman, andCarrasco-Tauber and Moffitt have applied it to ap-ples and major crops, respectively. Foster andBabcock have demonstrated a method for estimat-ing pesticide demand in cases where residue con-

L.ichtenberg Alternative Approaches to Pesticide Regulation 91

straints are binding. Considerably more informa-tion is needed, however, especially at the level ofindividual chemicals and their production relation-ships with alternative chemicals and other factorsof production.

Data availability has been a major limitation onthe ability to estimate pesticide productivity econo-metrically. We need information at least at thelevel of classes of chemicals, at best at the level ofindividual chemicals. This information should becollected from a single growing region to ensuresimilarity of growing conditions. It also needs atime-series component to capture price effects,since pesticide prices tend not to vary much withina single region. It would be preferable to haveobservations on pest-infestation levels, or at leaston environmental conditions (heat and humidityover the season, etc. ) that could serve as proxiesfor them. Very few databases of this kind exist.Some data of this sort have been collected as partof integrated pest management efforts, but thesedata sets are usually designed by entomologists orplant scientists and tend to skimp on economicinformation such as pesticide prices or the use andprices of non-pest control inputs. Data on farmproduction collected by the Economic ResearchService (e.g., the Farm Costs and Returns Survey)are designed for budgeting purposes. In mostcases, it is impossible to obtain both prices andquantities simultaneously. More detailed surveysconducted by the Economic Research Service onspecific crops contain information on acreagetreated with numerous individual pesticides but noinformation on application rates or prices.

A final item of interest is the structure of thepesticide industty. The industry does not fit theperfectly competitive model well. Production costsare dominated by the high fixed costs of R&D,which tend to deter entry. The terms of pesticideregulation, that is, the specifications listed on thepesticide label, are determined by bilateral bar-gaining between the registrant and EPA. The con-text for this bargaining is determined by the supplyof pest controls, which comes from an imperfectlycompetitive industry. Thus, the context in whichEPA makes its regulato~ decisions is dominatedby the structure of the pesticide industry, makingthat structure an interesting and important topic forfurther study.

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