Bt Cotton, Pesticide Use and Environmental Efficiency in Pakistan

type="main" xml:id="jage12072-abs-0001"> There is a broad literature on the impact of Bt cotton adoption in different countries, but few studies have explicitly looked at environmental and health effects from an economic perspective. We analyse the impact of Bt cotton on environmental efficiency in Pakistan, using farm survey data and a doubly heteroskedastic stochastic production function framework. Negative environmental and health effects of chemical pesticide use are quantified with the environmental impact quotient. Bt-adopting farms have higher cotton yields, while using lower pesticide quantities and causing less environmental damage. Bt farms are both technically and environmentally more efficient than non-Bt farms. Bt adoption increases environmental efficiency by 37%. Achieving the same reduction in negative environmental and health impact without Bt would cost conventional cotton farmers US$ 54 per acre in terms of foregone yields and revenues (7% of total revenues). Extrapolating this shadow price of the technology's health and environmental benefits to the total Bt cotton area in Pakistan results in an aggregate value of US$ 370 million. These benefits are in addition to the profit gains for Bt-adopting farmers. Our results suggest that Bt technology can contribute to sustainable agricultural development.