Interactions between Agricultural and Resource Policy: The Importance of Attitudes toward Risk

Using a method proposed by Meyer for deriving comparative statics results in the presence of risk, this paper analyzes the effects of various agricultural and environmental policy alternatives on the choices of a risk‐averse producer with a Just and Pope production function. Many commonly held beliefs about policy effects are not supported unambiguously by economic theory. For example, a tax on pesticides will not necessarily reduce pesticide use or average output, and a reduction in price of agricultural output will not necessarily lead to a reduction in use of water or agricultural chemicals.