The Effect of Market Structure on Pest Resistance Buildup

Abstract:     
In this paper we present a continuous time optimal control analysis of resistance buildup in agricultural chemicals when the supplier is a monopolist. We solve a general model and examine the solutions for Cobb-Douglas demand, including a simulation of changes in the interest rate and pest growth rate. The central finding is that with a monopolistic supplier, resistance buildup is lower than socially optimal. This directly opposes the standard result in the resistance literature. This perspective thus allows us to develop a policy prescription that depends on the structure of the industry supplying the pesticide. It suggests that there may be underuse of chemicals and a slow buildup of resistance in the early stages of the product life when it is controlled by a monopolist. However, when the patent expires and the supply of the chemical becomes more competitive, then there may be tendency to overuse the chemicals.

Keywords: optimal control, pesticide regulation, monopolies

JEL Classifications: Q20, Q28, L51

Working Paper Series