Costs of Production and Environmental Risk: Resource-Factor Substitution in U.S. Agriculture

Abstract

Agricultural production not only generates marketed “good” outputs (primary food commodities), but also non-marketed “bad” outputs (leaching and runoff of agricultural chemicals). In particular, the use of chemicals creates benefits for producers by augmenting the effective output produced from a given amount of other inputs (labor, capital, land, and materials), but these benefits are counteracted by the risk associated with environmental degradation. Decreasing the risk to human health from exposure to pesticides imposes costs on agricultural producers not balanced by direct benefits, since most of the social costs from agricultural chemical use are not translated into private costs borne by farmers.