The economics and econometrics of damage control

Concern for the potentially harmful side effects of agricultural chemical inputs, especially pesticides, highlights the need to accurately determine the economic levels of their use. We consider three model specification issues: interaction of direct production inputs with damage control inputs in damage abatement, justification for a priori exclusion of production inputs from the abatement function, and the motivations and consequences of alternative stochastic specifications. Empirical analysis using farm-level data shows that misspecification of the stochastic element in the production function can overestimate the marginal physical productivity of pesticides and grossly underestimate the responsiveness of demand to increases in pesticide prices.