Econometric Evaluation of New Technology with an Application to Integrated Pest Management

In this paper we provide a method for the microeconomic evaluation of a new technology using a panel data approach. With panel data, the choice of whether to adopt is endogenous, and firms (observations) for which it is more profitable to adopt may have self-selected the new technology as opposed to the case of experimental design data where the choice of technology is randomly assigned by the experimenter. Heckman showed that in the presence of self-selection common error structures lead to self-selection bias of ordinary least squares estimators. Duncan, however, noted some economic conditions, summarized by his Quantal Response Regression (QREG) condition, under which self-selection bias would not occur for ordinary least squares estimators. Both models are of the mixed continuous/discrete type, a system of equations with continuous and discrete endogenous variables. In addition to self-selection bias, a second type of bias may result from the use of panel data. Because a random sample could easily not contain enough observations in both groups of adopters and nonadopters to enable the researcher to draw statistical inference of the differences between the two groups, one might use stratified random sampling (Cochran); but stratification upon an endogenous choice-called choice-based sampling-can result in choice-based sampling bias (Cosslett, Hausman and Wise, Manski and Lerman, and Manski and McFadden). Our data are subject to both types of problems, so our econometric evaluation of a new technology using panel data requires a model which can account simultaneously for the possibility of both selfselection and choice-based sampling. We apply our model to the evaluation of integrated pest management (IPM) which is of interest to the general public, farm workers, growers, and policy makers. In Silent Spring, Rachael Carson popularized the growing literature on risks to the environment and human health from pesticides. From penguins in the Antarctic to mothers' milk, pesticides are ubiquitous. Residues of persistent pesticides on food, in water, and in the air resulting in continual long-term exposure at low doses pose to the general public largely unknown chronic disease risks, such as carcinogenicity, mutagenicity, and teratogenicity (Ames 1979). In response to these risks, entomologists embarked upon research to develop programs which integrate biological controls, such as predators and parasites, with pesticides (Stern et al.). IPM programs are not, however, always designed to reduce risks to human health and the environment, nor do IPM programs necessarily achieve that objective even when designed to do so. For example, Ames (1983) notes that crops which are naturally resistant to pests have natural pesticides which may be just as hazardous or even more so than artificially applied pesticides, and crop resisThe authors are, respectively, an assistant professor, University of California, Riverside, and an associate professor, Washington State University. Giannini Foundation Paper No. 714. The authors gratefully acknowledge financial support from the University of California Agricultural Experiment Station and the Consortium for Integrated Pest Management, funded by the U.S. Environmental Protection Agency and the U.S. Department of Agriculture through Texas A&M University.