The effects of uncertainty on producer response to environmental policies : the case of integrated pest management by lawn care firms

Author

Thomas Neil Yoder

Date of Award

8-1995

Degree Type

Dissertation

Degree Name

Doctor of Philosophy

Major

Economics

Major Professor

James R. Khan

Committee Members

Matthew N. Murray, Robert A. Bohm, Amy Farmer, Paul M. Jakus

Abstract

Producers in many markets face uncertainty about production costs at the beginning of the production process. In this study, a model of producer behavior is developed which explicitly incorporates expected penalty functions for over and under-predicting the future state of nature. If these expected penalty functions are asymmetric, producers in this model shift planned resource levels away from the levels associated with the predicted state of nature to maximize expected profits.

The conditions under which this shifting of resource levels may occur are set forth and empirically tested using data collected from a sample of professional lawn care firms. Endogenous switching regression models are specified and estimated using random effects maximum likelihood methods and estimated generalized least squares techniques. The results lend support to the theoretical concept that firms, in response to asymmetric penalties, plan input and output levels that deviate from the levels associated with the predicted state of nature.

The estimated technology measures allow for comparative static analysis of the effects on pesticide use of potential environmental regulations or taxes in this market. The results suggest that policymakers can use economic incentives, such as a tax on preventive pesticides, to alter the relative penalties between over and under-predicting pest damage and thereby reduce the intensity of pesticide use. The results also indicate that policymakers should jointly consider nitrate and pesticide pollution when devising a policy portfolio, since taxing fertilizer use with the aim of reducing nitrate pollution will, ceteris paribus, increase the intensity of pesticide use.

Recommended Citation

Yoder, Thomas Neil, "The effects of uncertainty on producer response to environmental policies : the case of integrated pest management by lawn care firms. " PhD diss., University of Tennessee, 1995.
https://trace.tennessee.edu/utk_graddiss/10273