Biological interactions and environmental effects in the economics of pest control

The problem of pest control is tackled in a context of an ecosystem that consists of prey-predator populations with human interaction through pesticide application. The control, aimed at reducing pest damage, results in two undesirable external effects: reduction of beneficial predator population and environmental contamination. The untapped natural equilibrium is compared with equilibrium resulting from decentralized and centralized economic decision making. It is shown that, under certain conditions, myopic decision rules increase rather than decrease the pest damage. The “user cost” (or benefit) is shown to be crucial in determining the optimal centralized policy, and its relations to the various components of the system are analyzed. The components of the user cost are analyzed to determine the level of taxes or subsidies that will yield the optimal policy.