Essays on Applied Economics
This dissertation is comprised of two essays that apply tools from applied microeconomics and empirical methods to study important issues in agriculture, environment and health economics. The unifying topic of the essays is the use of economic reasoning and careful research design to identify causal relationships using observational data.
In the first essay, I investigate the environmental effects due to pesticides for two different genetically modified (GM) seeds: insect resistant (IR) cotton and herbicide tolerant (HT) soybeans. Using an agricultural production model of a profit maximizing competitive farm, I derive predictions that IR trait decreases the amount of insecticides used and HT trait increases the amount of less toxic herbicides. While the environmental impact of pesticides for IR seeds is lower, for the HT seeds the testable predictions are ambiguous: scale and substitution effects can lead to higher or lower environmental impacts. I use a dataset on commercial farms use of pesticides and biotechnology in Brazil to document environmental effects of GM traits. I explore within-farm variation for farmers planting conventional and GM seeds to identify the effect of adoption on the environmental impact of pesticides measured as quantity of active ingredients of chemicals and the Environmental Impact Quotient index. The findings show that the IR trait reduces the environmental impact of insecticides and the HT trait increases environmental impact due to weak substitution among herbicides of different toxicity levels. This is an important result for three reasons. First, it contributes to uncover environmental effects that have been hidden by the qualitative nature of the change mix of herbicides induced by HT trait. Second, environmental policy makers designing policies for biotechnology adoption might consider this new evidence to differentiate among GM traits that produce positive or negative externalities. Finally, the composition of the EIQ index suggests that the environmental impact of pesticides can have multiple dimensions that might involve farmworker health and safety, consumer safety and ecological impacts. Hence, the results on HT soybeans points to additional avenues of work that should be taken to evaluate each of these possible channels since they can also affect other important outcomes such as human capital accumulation.
The second essay studies the behavior of mark-up for antihistaminic medicines, used as a treatment for allergy symptoms caused by seasonal high pollen concentration on air, and test whether it's consistent with models of dynamic price competition with fluctuating demand. I draw on the empirical tests of the theory of dynamic price competition which examine the response of observed price-cost margins - retail minus wholesale prices - to expected demand, controlling for current demand. Using a dataset of retail sales, I estimate a reduced form model that captures some of the characteristics of the dynamic price competition with cyclical demand. It consists of a relationship between prices of antihistaminic drugs and measures of pollen concentration on air, taking into account the current level of demand in a given market. Under two basic assumptions - the marginal costs of drugs in each city is the same and level of pollen concentration on air works as a proxy for the expected demand in a given week and prices respond positively to those expectations -, I find evidence that the behavior of the retail margins is consistent with the predictions of models of dynamic price competition under cyclical demand. The essay makes a contribution to understand the dynamics of behavior in oligopolistic markets that might be of interest to academics and practitioners who wants to understand conduct and performance of industrial markets.