Implications of Simultaneity in a Physical Damage Function

Kelly M. Cobourn, Boise State University
Hannah J. Burrack, North Carolina State University
Rachael E. Goodhue, University of California - Davis
Jeffrey C. Williams, University of California - Davis
Frank G. Zalom, University of California

Article comments

NOTICE: This is the author’s version of a work accepted for publication by Elsevier. Changes resulting from the publishing process, including peer review, editing, corrections, structural formatting and other quality control mechanisms, may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. The definitive version has been published in Journal of Environmental Economics and Management, 2011. DOI: 10.1016/j.jeem.2011.02.002

Abstract

A modeler must often rely on highly simplified representations of complex physical systems when analyzing associated economic issues. Herein, we consider a management problem in which a bioeconomic system exhibits simultaneity in processes governing productivity and damage. In this case, it may benefit the producer to sacrifice productivity to reduce the costs associated with increased damage. We specify empirically a structural damage relationship that explains the biological process by which an invasive species damages a host and estimate the structural model and its reduced form with an exceptional dataset on infestation of olives by the olive fruit fly. We contrast the results of these models with the approach typically taken in the economic literature, which expresses damage as a function of pest density. The population-based approach introduces significantly greater bias into the individual grower's choice of damage-control inputs than estimates based on the structural model.