Effective Costs and Chemical Use in United States Agricultural Production : Using the Environment as a “Free” Input

A cost‐function‐based production model is used to represent patterns of input use and output production in U.S. agriculture, and the implied costs of induced reductions in risk from agricultural chemicals (“bad outputs”). We estimate and evaluate shadow values for these harmful outputs, and the implied input‐ and output‐specific substitution patterns, with a focus on the impacts on pesticide demand and its quality and quantity components. Using state‐level data we find these measures to be statistically significant, vary substantively by region, and imply increased demand for effective pesticides associated with improvements in quality from embodied technology