Department of Agricultural and Resource Economics

This study uses a cost-function-based model of production processes in the U.S. agricultural sector to represent producers’ input and output decisions, and the implied costs of reductions in risk associated with leaching and runoff from agricultural chemical use. The model facilitates evaluation of the statistical significance of measured shadow values of "bad" outputs and their input- and output-specific components. Of special interest are the impacts on pesticide demand and its quality and quantity aspects. The shadow values of risk reduction are statistically significant, and imply increased demand for "effective" pesticides that come mainly from embodied technology leading to improvements in quality.