Marginal Analysis of Welfare Costs of Environmental Policies: The Case of Pesticide Regulation

We present a methodology for estimating net social welfare costs and their distribution using only information on price, quantities, elasticities of supply and demand, and estimates of cost and/or yield effects of policies provided by natural scientists. An application to a case of pesticide regulation demonstrates the importance of equity effects. Simulations show that redistribution of income among producers becomes the dominant effect of pesticide policies when supply elasticities are higher and demand elasticities are lower, with changes in supply elasticity having a greater impact than changes in demand elasticity. For crops with significant export markets, foreign consumers are shown to bear much of the short‐run cost.