Product Concentration and Usage: Behavioral Effects in the Glyphosate Market
Edward D. Perry, David A. Hennessy, GianCarlo Moschini
January 2019 [19-WP 588]
Perry, E., D.A. Hennessy, and G. Moschini. 2019. "Product Concentration and Usage: Behavioral Effects in the Glyphosate Market." Working paper 19-WP 588. Center for Agricultural and Rural Development, Iowa State University.
People often ignore or misunderstand information that would help them make better decisions. For products that differ by concentration level, a critical choice concerns the correct dosage rate. We study the effects of changing glyphosate product concentration levels on farmers’ glyphosate usage behavior. Glyphosate is the world’s most widely used herbicide. After glyphosate went off patent in 2000, product variants with higher concentration levels entered the market. Using detailed farm-level glyphosate use data in U.S. corn and soybeans over the period 1998-2011, we estimate the impact of product concentration levels on glyphosate application rates. We control for prices and other sources of heterogeneity by means of individual and time fixed effects. Our findings indicate that increasing the baseline concentration level by 10 percent increases the application rate by nearly 6 percent, despite the fact that labels on more concentrated products provide instructions on how to correctly adjust dosage rates downwards. We attribute part of the concentration effect to rational behavior and part of it to label confusion and/or habit, with smaller farms and late adopters being more likely to resort to habit. A counterfactual simulation predicts that label confusion and/or habit was responsible for a 4.6% increase in total glyphosate use and an additional $59 million per year (4.7%) in glyphosate sellers’ revenues.