Should we internalize intertemporal production externalities in the case of pest resistance?

Pesticides efficiency decreases with their global application by farmers. Within a strategic dynamic framework, this results in a classic intertemporal production externality. We analyze tax and subsidy schemes that can be used in order to internalize this externality. We show that they are able to restore socially optimal paths but that final time of pesticide use differs. With these schemes, farmers have a tendency to switch to alternative pest-control technology, as integrated pest management, earlier than is optimal. A lump-sum transfer is shown to be necessary to obtain a switching time equal to the socially optimal one, for the subsidy case only. Furthermore, the socially optimal switching time can be later than the one obtained under a situation without control.