Should we internalise inter-temporal production spillovers in the case of pest resistance?

The efficiency of pesticides decreases with their global application by farmers. Within a strategic dynamic framework, this results in inter-temporal production spillovers. We analyse a dynamic fiscal scheme that can be implemented to correct these inefficiencies. Weshow that it is able to restore socially optimal paths but that the final time of pesticide use differs. With this scheme, farmers have a tendency to switch to a backstop pest-control technology earlier than is socially optimal. We also show that an additional exit fiscal scheme is necessary to obtain a switching time equal to the socially optimal one. We test our theoretical results on a stylised illustration, showing that the best policy strategy consists of implementing a lump-sum transfer in order to delete the revenue effect induced by the dynamic fiscal scheme.