Biologists now engineer transgenic crop varieties that offer farmers a new tool for effectively managing pests. Concern over pest resistance, however, has prompted the Environmental Protection Agency to require resistance management plans. This paper develops an economic model of pest management with pest resistance to estimate the constant proportion of cropland planted in refuge that maximizes farm income over a fixed planning horizon. Results indicate a clear economic tradeoff between the pest control benefits of a transgenic variety and the resistance management benefits afforded by refuge.
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