REGULATION IN QUALITY DIFFERENTIATED MARKETS: PESTICIDE CANCELLATIONS IN U.S. APPLE PRODUCTION

If agricultural output results from non-separable multiproduct technologies, environmental regulation can change the set of possible output combinations. This will be important when regulation affects the quality composition of a crop. As a result, market and welfare changes have to be assessed in technology-related markets. We present a model that serves to estimate the economic impacts in such instances and use it in the assessment of pesticide regulation in the U.S. apple industry. Impacts for four pesticide cancellation scenarios are assessed. It is shown that changes in the quality of a crop lead to significant market reallocation effects.