An Economic Analysis of Pesticide Advertising

The effect of advertising on pesticide sales is analyzed through the estimation of sales response functions. Separate aggregate time series models of advertising's effect on sales volume and revenue are estimated for herbicides and insecticides. Advertising and sales are hypothesized to be part of a simultaneous system which is estimated by three stage least squares regression techniques. Results indicate that advertising has not been a significant factor in increasing aggregate pesticide sales. These findings are used to question the efficiency of resource allocation decisions within this industry. While advertising may convey information to potential buyers, and thereby make a positive contribution to social welfare, the results obtained here suggest that in the aggregate, these growing expenditures have not been associated with increased use of pesticides. It is argued that firms' advertising appropriations may be self-cancelling, with the firms caught in something of a "prisoners' dilemma" game strategy.