Pesticide externalities, comparative advantage, and commodity trade : cotton in Andhra Pradesh, India

Because the cotton bollworm is migratory, a farmer who controls the pest in his own field creates a positive externality for other farmers. But because pesticide use leads to the development of pesticide-resistant strains, he also creates a negative externality. These externalities affect a wide range of food crops as well as cotton. Because of their extensive migratory patterns, pesticide resistant bollworms are attacking food crops situated hundreds of kilometers from the cotton tracts in coastal Andhra Pradesh, India. The author of this report develops a theoretical model that incorporates these externalities and examines the conditions needed for economically optimal use of pesticides, as well as of other agricultural inputs in cotton cultivation. Using field data, the author tries to quantify the losses in cotton and other crops due to the development of resistant pests. Under one scenario, the costs of externalities could raise the economic cost of cotton cultivation 50 to 60 percent. After empirically evaluating the taxation of inputs and the implementation of integrated pest management (IPM) practices to address the pest problem, he concludes that IPM offers the most feasible and environmentally benign way to achieve Pareto optimality, especially in the long term.