Pesticide use, health impairments and economic losses under rational farmers behavior

This paper develops a novel methodology for measuring the economic losses resulting from the negative health impacts of pesticides while taking into account their role as a damage control agent. To this effect a production model is presented that takes into account both the effect of the health impairment caused by pesticides on labor units and the pest control and crop enhancing properties of pesticides. The supply responses and optimal cost adjustments made by rational farmers in the absence of health effects are examined, which facilitates the proper measurement of the private economic losses associated with the health effects of pesticides. The biases in previous pest-damage measures that ignore the presence of health effects are also examined. The model is empirically applied to a unique panel dataset of organic and conventional Greek greenhouse vegetable producers where the use of health-hazardous pesticides is particularly prominent. Moreover, the estimation of health impairment indices takes into account the observational nature of the data collected, applying recently developed treatment effects methods. The results show that farmers suffer considerable quasi-rent losses due to the negative effect of pesticides on health.