The Effects of Residue Tolerance on Pesticide Use, Hop Marketing and Social Welfare

Pesticide use can mitigate production risks from pest and disease infestations. However, intensive pesticide use may result in large amount of pesticide residues, causing hop-quality damages and raising food safety issues. Pesticide use also leads to sizable negative ecological and environmental externalities. In respond to food safety and other socio-economic issues, policy makers, such as national governments and international organizations, pursue low pesticide residues by implementing tolerance which permits only a maximum concentration of agrichemical residues. This paper examines the social-economic impacts of the residue tolerance. To this end, a four-stage game theoretic model is outlined to characterize the stylized attributes of both domestic hop production and marketing. The model highlights the strategic interactions between hop growers, hop merchant and the government. Multiple market equilibria are characterized. The analysis contributes to a better understanding of social welfare which accommodates the environmental externalities of pesticide use. Simulations are conducted based on hop production information in the Pacific Northwest of the United States.