Showing papers in "American Journal of Agricultural Economics in 1968"

Utility Analysis in a Practical Setting

Abstract: An empirical study involving derivations of farmers' utility functions and the accuracy of these functions in predicting practical decisions is here reported. Three models of utility estimation which were used are compared as to their predictive accuracy and usefulness under field conditions. The study tests the hypothesis that maximizing expected utility, as a criterion of decision, is superior to maximizing expected monetary value. Utility functions are derived for two points in time in order to test the hypothesis that, if utility functions are to serve as a guide to the decision maker, they must be derived at each point in time at which decisions are made. Implications for decision-making research and for practical farm decision making are indicated.

Estimating the Productivity of Agricultural Pesticides

Abstract: The controversy surrounding the use of agricultural pesticides has resulted in the examination of pest control technology and a need for estimates of the costs and benefits of pesticides. Estimates of the productivity of expenditures for agricultural pesticides are made from an aggregate production function analysis for 1963. The results indicate that chemical pesticides are a highly productive input, comparable to commercial fertilizer, and that the marginal value product of pesticides exceeds marginal factor cost by a considerable amount. These results are consistent with increasing sales volumes of pesticides and fertilizer nationally. Use of values determined through the market system to estimate benefits are a necessary part of evaluating chemical pest control. Up to the present time, no systematic effort has been made to estimate separately the productivity of pesticides. The findings point to a need for better data on the response of crops and livestock to pest control as well as a need for data on the external effects of chemical pesticides. Considerably more analysis and information are required to evaluate pesticide technology and to form good national policy in this area.

On Scientific Objectivity

Abstract: The research process is never devoid of value judgments. Nevertheless, motivation of the researcher does not necessarily render work unobjective in a scientific sense. Threats to scientific objectivity include the difficulty of changing a publicly expressed viewpoint, a vested interest in a particular theory, the desire to avoid controversy, and the desire for financial gain. The researcher must be careful, however, to avoid equating his own views with the "public interest" and condemning those with opposing views as lacking scientific objectivity.

Institutions and the Rising Economic Value of Man

Abstract: I TAKE it to be true that there is a strong connection between the investment in human capital and the secular rise in the economic value of man. The institutional implications of this development are, however, far from clear. My purpose is to show that the rise in the economic value of human agents makes new demands on institutions, that some political and legal institutions are especially subject to these demands, that there are lags in adjusting to the new demands and these lags are the key to important public problems, and that economic theory is a necessary analytical tool in clarifying and solving these problems. It might be said that human capital is protesting the status quo of institutions as it seeks participation rights for itself. Be that as it may, there is enough historical perspective to see that the ownership of land is declining as a source of economic leverage, and so is the ownership of physical capital relative to that of human capital. We have long known that Ricardian rent is not the fulcrum of economic values; nor is physical capital the critical historical factor, as Marx believed. The institutions governing private rights in land and in other forms of physical capital when Ricardo and Marx made their contributions would be far from adequate in contemporary society with its large investment in human capital. Would that economics could have been blessed by the marriage of Irving Fisher's allinclusive concept of capital [4] and John R. Commons' legal foundations of that capital [3]. It is currently a mark of sophistication in presenting economic models not to mention institutions. But for all that, it is a significant trait of contemporary economics that, despite this omission, it manages somehow to find support for institutional changes. It is a neat trick, but it cannot hide the fact that, in thinking about institutions, the analytical cupboard is bare. There are a few old boxes on the back shelf labeled "institutional economics" which have been pushed aside and which have long been

The Impact of Managerial Ability and Capital Structure on Growth of the Farm Firm

Abstract: A simulation model of farm firm behavior in a dynamic environment with elements of uncertainty was developed. The decision maker's formulation of expectations regarding future prices and yields, his selection of alternative farm plans, evaluation of the expected outcomes of the plans with respect to four goals, and implementation of the plan offering the highest level of overall satisfaction are explicitly considered. The expectations, goals, and resource position of the firm are adjusted to reflect the outcome of the particular plan implemented, and the process is repeated for the next year. A case was simulated for a period of 20 years under three different levels of managerial ability and 27 different capital market structures. It is concluded that managerial ability and long-term loan limits are the major factors, among those considered, influencing farm firm growth.

Efficiency of Resource Allocation in Indian Agriculture

Abstract: This study presents an analysis of resource allocation in Indian agriculture. Production functions are fitted to pooled data. Average and marginal productivity differences are derived for a number of inputs in the production of different crops, across different regions, and over various farm sizes. The results, on the whole, do not lead to the rejection of the hypothesis that there are comparatively few inefficiencies in resource allocation in Indian agriculture.

Credit in the Production Organization of the Firm

Abstract: EACH firm has a financial component as well as nonfinancial components The financial component includes claims held and debts owed, values reported in a balance sheet of the firm A less evident part of the financial component is liquidity of the firm: access to financial assets and terms on which such access may be gained Profit-seeking managers are willing to pay for liquidity in more or less tangible terms The most tangible, perhaps, is found in insurance The second is in choices made that favor liquid relative to illiquid assets and flexibly managed debts relative to inflexible debt commitments A third is in reservation of "credit"-credit defined as the capacity to borrow Unused credit, like balance sheet assets that are liquid, constitute a reserve of liquidity that can be called upon to counter the effects of failure in expectations Though not included in the balance sheet, liquidity also has value In this article, I outline the effects of liquidity value, in the form of "credit," on production organization of the firm and stress the fact that the values are attached to the unused portion of "credit" To exchange credit for a loan generates a cost in the tangible form of interest The exchange also entails a loss of liquidity How costly it is to lose liquidity depends upon the total credit available to the entrepreneur and alternative sources of liquidity In any event, I argue that "credit" is an asset which can be managed-made to grow, decline, and change in structureand that the results are important for production organization of the firm t Ideas contained in this article were assembled in seminars which I conducted at the Universities of Sydney, Melbourne, Adelaide, and Western Australia (Perth) and Australian National University in 1967 However, their origin is in research conducted earlier at the University of Illinois Thanks are due especially to G D Irwin, D E Neuman, and L F Rogers for early testing of the utility of the notion of lender preferences and to staff and students at the various universities for criticisms on the broader frame of reference in which this article is cast Finally, I am grateful for comments from two anonymous Journal reviewers

Statistical Analysis of Identities in Random Variables

Abstract: A random variable of economic interest is sometimes an identity function of two or more separate variables; for example, crop income per acre is the product of price and yield. This article presents a method for partitioning the variance of such a random variable into components that can be associated with the separate random variables in the identity and interactions among them. Under some statistical assumptions on the variables involved, the converse of the partitioning procedure is useful for deriving the variance of a random variable from the moments of the separate variables of the identity.

Economics of Cost-Share Leases in Less-developed Countries

Abstract: Economists have long recognized that output-share leases result in inefficiencies in variable resource use. Cost-share leases have been suggested as a way of overcoming this inefficiency. Only in rare cases, however, has cost sharing become a part of share leasing in less-developed countries. It is argued in this article that in less-developed countries landowners generally make more net income by not adopting cost-share leases. The societal loss due to output-share leasing, and several policy alternatives, in addition to cost-sharing, which might help resolve this inefficiency problem, are discussed.

Monopolistic Cocoa Pricing

Abstract: Although attempts to introduce international regulation as a device to benefit cocoa producing countries have failed in the past five years, considerable pressure remains to try again. In this study, estimates are formed of the probable changes in some of the relevant variables if an international monopolistic cocoa pricing agreement were implemented. On the basis of new estimates of cocoa supply and demand relations, effects of the hypothetical institution of discriminatory monopolistic pricing in 1964 are examined. Such an agreement would have resulted in marginal, although possibly important, additions to the leading cocoa producing countries' command over external resources; but stock accumulation or surplus disposal problems might have been troublesome, and long-run supplies would have increased substantially unless producers were effectively isolated from the world market.

Transfer Restrictions and Misallocations of Irrigation Water

Abstract: The hypothesis of the study is that allowing intercompany transfers of irrigation water would significantly increase the marginal value product of water. Regression analysis was used to explain a time series of rental prices for an area in Utah where four companies freely exchanged water after a long period during which only intracompany transfers were permitted. Water delivered per irrigated acre and type of transfer policy in use were the statistically significant variables and explained 89 percent of the variance in rental price. Covariance analysis indicated that the greater flexibility in transfer increased the real price of water per acre‐foot by $1.84.

Price Elasticity of the Demand for Cigarettes in the United States

Abstract: The retail price elasticity of demand for cigarettes is a particularly important parameter for social decisions at this time. Results from prior cigarette elasticity studies vary widely, ranging from −0.10 to −1.48. Temporal changes may explain some of this variation, but differences in research methods are more important. The quasi-experimental approach used in this article yields an elasticity estimate (−0.511) free of many of the extraneous and irrelevant systematic influences that afflict time-series and cross-section methods. In addition, the length of run of the elasticity is known and explicit. The method provides built-in protections against bias from trends in collinear variables and produces sensible estimates with reasonably small and measurable dispersion.

Quadratic Programming Solution of Competitive Equilibrium for U.S. Agriculture

Abstract: A quadratic programming model is applied to the solution of a competitive equilibrium for the field-crops sectors of U.S. agriculture. The analysis is based on nine spatially separated markets, with separate demand functions for six commodities in each. The objective of the programming model is to maximize net profits (total revenue minus production costs, land rents, and transportation costs) derived from satisfying the endogenously determined demand in the various markets. This objective is subject to the constraints on land availability, demand functions, and the competitive equilibrium condition that product price not exceed marginal cost. The empirical results are consistent in the sense that programmed equilibrium prices are considerably lower than actual prices in the base year, 1965. Even under equilibrium at relatively low prices, surplus land is indicated in the Southeastern and Great Plains states. The results suggest the potential for various policy applications, including the analysis of potential short-run prices in the presence or absence of "free market" equilibrium. G ENERAL equilibrium analysis occupies a central place in the interest of earlier economists such as Walras, Pareto, Fisher, Wicksell, and Cassel. More recently, several writers, including Kuenne [11] and Dorfman, Samuelson, and Solow [4] have contributed extensions of these earlier works. The latter have emphasized the relationships between linear programming and general equilibrium. Substantive empirical investigations, lhowever, had to await the development of large-capacity computers. Even then, most investigations to date have treated only one economic sector in isolation or purely linear formulations. Many examples of linear models are available. Dennis and Sammet [3], Farris and King [6], Henderson [9], and Snodgrass and French [18] all formulated single-product linear models. Heady and others [2, 5, 8] have (leveloped multiproduct models for U. S. agriculture, with many spatially separated markets and producing regions. In recent years, attention has turned to quadratic programming models. Takayanma and Judge [19] considered both single-product and multiproduct

Toward a Concrete Concept of Effective Competition

Abstract: In presenting a concept of effective competition—that is, of a socially desirable state of affairs in an industry or a market—a writer should be specific about the issues, definite about his own views, explicit about necessary versus sufficient conditions, realistic about whether desirable conditions are attainable, discriminating in judging between a condition and its effects, comprehensive in listing market deficiencies, and stringent in describing his ideal By this author's standards, a market is effectively competitive if and only if it is free of 25 flaws: unsatisfactory products, underuse or overuse, inefficient exchange, inefficient production, bad externalities, spoliation, exploitation, unfair tactics, wasteful advertising, irrationality, undue profits or losses, inadequate research, predation, pre‐emption, tying arrangements, resale price maintenance, refusals to deal, undesirable discrimination, misallocation of risk, undesirable mergers, undesirable entry, misinformation, inefficient rules of trading, and misregulation

The Impact of Public Law 480 Imports on Prices and Domestic Supply of Cereals in India

Abstract: This article quantifies the impact of imports of cereals under Public Law 480 on the prices and domestic supply of cereals in India. An econometric model encompassing six simultaneous equations is set up. An analytical framework for measuring the impact of P.L. 480 imports on prices and domestic supply is constructed. The statistical analysis supports the belief that the importation of cereals under P.L. 480 leads to lower prices and a decline in domestic supply but that the decrease in domestic supply is less than the quantity imported. Thus, there is a net addition to the quantity available for consumption, which is a significant contribution in a shortage economy. INDIA has figured prominently in the operations of U.S. Public Law 480. Of the total market value of $9,401 million programmed under Title I for all countries during the period July 1, 1955, to December 31, 1964, $2,486 million (26 percent) was for India. Of all the cereals available for human consumption in India during the period 1957-1963, some 5 percent were from imports under P.L. 480 Title I. In an economy which is unable to meet its food needs from domestic production, this is a significant contribution. This article measures the impact of the imports of P.L. 480 cereals on the prices and the domestic supply of cereals in India. Background No attempt so far has been made to study the impact of P.L. 480 imports on Indian agriculture in a systematic and analytical way. In 1960, T. W. Schultz [9] put forth an "admittedly speculative" argument that the effects of P.L. 480 imports upon agriculture of the recipient country were likely to be adverse through a fall in the prices of agricultural products. The cultivators in India would be faced with a decline in the prices of farm products, and the incentive to maintain or expand agricultural production would be thwarted. Professor Schultz has recently repeated the same argu

Potential Entrants and Projections in Markov Process Analysis

Abstract: Markov processes, despite their limitations, are becoming more widely used as a method of making projections of size and income distributions. The number of potential entrants to an industry or a population assumed in an analysis has an important effect on both short-run projections and equilibrium solutions. The number of potential entrants is not a passive variable, as has often been said or implied. Through the use of changes in the number and size of dairy farms in New York State as an example, alternative projections in the short run are presented for different assumptions about the number of potential entrants. The general case is developed algebraically for the effect of the number of potential entrants assumed (N) on the equilibrium solution for the vector t.

Allowing for Weather Risk in Assessing Harvest Machinery Capacity

Abstract: To take account of the effect of weather on the cereal harvest, a simulation model is outlined in which rates of combine work, harvest weather, and diurnal grain-moisture content are regarded as probabilistic, with known distributions based on empirical data. On the basis of this data, the interaction of the variables is assessed over a thousand "years" of synthetic harvesting experience, in which the timeliness of the harvesting operation is assessed in terms of increased grain drying costs, and which is repeated to assess various policies which might be adopted by farmers. The results are presented as normative average total cost curves for various harvesting systems, based on the certainty equivalence of the decision under risk.

“Subsistence Agriculture”: Analytical Problems and Alternative Concepts

Abstract: This article argues that the concept of “subsistence agriculture”—widely encountered and long used in the literature—is not meaningful enough to be analytically useful as usually employed and should be abandoned. Particularly important for policy is the fact that use of the term “subsistence agriculture” leads to implicitly treating all small‐scale agriculture as a homogeneous residual made up of producers who vary little in their potential contribution to economic development. Data are presented which strongly suggest that small‐scale agriculture in less‐developed countries is not homogeneous so far as decision‐making situations are concerned. The second half of the article considers development of an alternative set of criteria for classifying small‐scale farmers that would reflect meaningful differences in decision‐making experience and decision‐making situations. A tentative set of such criteria for which data are now available, or could be developed with relative ease, are presented to illustrate the relevance of such a classification for development planning and policy.

A Simulation Program to Establish Optimum Crop Patterns on Irrigated Farms Based on Preseason Estimates of Water Supply

Abstract: THIS paper describes a simulation program for a digital computer that is designed to establish an optimum crop pattern on irrigated farms The program called PLAN is designed to make the most efficient use of the predicted water supply throughout the season in order to derive the highest net income A basic part of the program is crop response to soil moisture conditions, which varies for individual crops over a season and among periods in the growth cycle Schedules of adequate soil moisture conditions for crops and of reductions in yields that result from missing specified irrigation turns are input data for the program The program uses three decision points: an irrigation organization allocates water to farms, and irrigators and farm managers make decisions as to which crops to water and in what order The PLAN routine determines the optimum crop pattern to be grown on each farm based on the water supply of the individual farm and its seasonal availability The results of four computer runs using three water supply situations are presented to illustrate the effects of the planning process on the acres of crops to be grown under different water supply expectations and on farm and area incomes Table 1 contains estimates, based on evapotranspiration studies, of irri-

Changing Orientations of Marketing Research

Abstract: MORE than anything else, this essay is a search for a more meaningful professional role for the publicly supported agricultural economist in a radically changing and troubled America. My efforts were initially directed to this topic by a very general question, "What should we be doing in marketing research?" asked by the administrators of the Economic Research Service. They tied the question to an offer of support, providing an opportunity to discuss marketing research with a number of producers and users of such research. In response, I wrote A Working Paper Concerning Publicly Supported Economic Research in Agricultural Marketing, which was printed by ERS. This essay is an elaboration of several themes from this working paper.' The task is to identify the important emerging problems and issues which relate to the economic and social organization of the food and fiber sector and then to identify the researchable questions which, when aggregated and interpreted, contribute to the understanding of the larger issues [6]. Scientific Industrialization

Why Peasant Farmers Borrow

Abstract: Interest rates are high in the rural credit markets of poor countries. Yet it is often said that the rates of return on capital invested in traditional inputs is low. Under these conditions it would seem uneconomic for farmers to borrow; if funds are needed, farmers should sell assets. If the expected costs are greater than the expected benefits, farmers will not have as much incentive to borrow money. Indeed, the evidence suggests that in poor countries most farmers are free of debt. But there is great diversity; some farmers do have high marginal returns on capital; some borrow at low rates; seasonality influences the debt structure, as does the level of wealth; and transactions costs may make borrowing cheaper than selling assets. Introducing uncertainty reduces the chances that farmers will borrow.

Economic Considerations in Response Research

Abstract: The general neglect of economic considerations in response research is noted. Following the listing of several factors which influence investment in response research, a framework is developed in which knowledge of a process is viewed in terms of the expected value and variance of profits. A Bayesian scheme for incorporating additional information in posterior analysis is outlined. Worth of additional information is judged in terms of utility. The scheme is used to show how the value of obtaining additional information can be ascertained ex ante in preposterior analysis by way of a Monte‐Carlo approach. Both posterior and preposterior analyses are illustrated through a soybean‐fertilizer process. In this empirical example, the effects of using different experimental designs of varying size are examined.

Demand for Farm Tractors in the United States and the United Kingdom

Abstract: Econometric studies of the demand for farm tractors in the United States and the United Kingdom are compared within a theoretical framework. The motivation behind the demand for tractor services appears to have been similar, the results being consistent with profit‐seeking behavior of farmers whose investment decisions are constrained by uncertainty and available finance. However, whereas the dominant explanatory variable in the United Kingdom has been the real price of tractors relative to agricultural wages, the dominant variable in the United States appears to have been the price of tractors relative to crop prices. In addition, in the United States farm size changes have affected the use of tractor stock and thus the demand for tractors, whereas in the United Kingdom this was not the case. An attempt is made to explain the differences in investment behavior by reference to differences in the structure of the labor force, farm size, and government agricultural price and taxation policies.

Micro Goal Functions and Economic Planning

Abstract: ACCEPTANCE of this assignment, with the above title, allows a more precise delineation of the area "where angels fear to tread." On the other hand, one could "wisely" dismiss the assignment by recalling that the goal of both micro and macro planning is maximization of utility, subject to political, economic, and other environmental restraints. However, unless we can specify some content for empty utility functions, which is highly unlikely, this approach has only the merit of brevity, allowing us to present the shortest paper on record. A less extreme, less brief, but perhaps more revealing approach is to undertake to look at the similarities as well as the dissimilarities of goal functions used in empirical micro planning and the objectives considered in macro planning studies. The commonality between firm growth and general economic growth has been noted by Baumol [1, p. 88], among others. Baumol states, "Though not all attempts by individual firms to increase their size will add to national output (as when the company expands by merger), much of this expansionary effort will, in fact, make for growth of the entire economy." But macro economic planners are generally faced with multiple goals. Marglin [11, p. 19], for example, stresses four objectives most relevant to investment planning in the public sector: (1) to increase aggregate consumption, (2) to redistribute consumption, (3) to fulfill "merit wants," and (4) to promote national self-sufficiency. While further variations and subclassifications of goals are found in the literature, the consumption goal is generally recognized and emphasized by most macro planners and theorists. This has its counterpart in investment decision theory or capital budgeting, largely based on Irving Fisher's classic analysis which regards investment as only a means for distributing consumption over the course of time [8]. Why, then, offered precedents in the fields of macro theory and investment planning, have agricultural production economists stressed maximization of profits and rates of return and given so little acknowledgment to

Farm Labor Mobility, Migration, and Income Distribution

Abstract: HE heavy incidence of low incomes in agriculture has been highlighted again by the recent report by the President's National Advisory Commission on Rural Poverty [9]. One of the solutions long advanced for the low-income problem among farm people is increased rates of transfer of labor from farm to nonfarm employment. This solution is still advanced as the most obvious one, even though the high exodus rates of the past apparently have not resulted in changing either the income distribution within agriculture or the relative income position of farm and nonfarm people [3, 4, 5]. Given the belief that high rates of labor mobility will tend to reduce both interarea and interpersonal income inequalities, how does one explain the lack of improvement in light of the rapid out-movement that has occurred? One explanation put forth has been that insufficient aggregate nonfarm demand for labor backs up labor in agriculture. A second explanation has been that, because of a variety of impediments, the out-movement to nonfarm employment simply has not been fast enough. Implicit in the model underlying these inferences are a number of assumptions:

The Lockset Method of Sequential Programming Applied to Routing Delivery and Pickup Trucks

Abstract: The lockset method of sequential programming was used in this study to route feed delivery trucks and indicated potential distance savings of as much as 20 percent in comparison to the actual routes used by the business concerns. It was also found that in some cases the number of trucks required to make the deliveries could have been reduced from the number actually used, without changing the day of delivery. Feed manufacturing firms from New England to California supplied information on actual deliveries. An ex post routing of the same trucks to deliver the same quantities to the same receivers was made and the distance and number of trucks needed were compared with the distance and number of trucks actually used. Typical distance reductions were from 8 percent to 12 percent. In no case did the actual routing show fewer miles than the routes discovered by use of the lockset method. The system is computerized to enable a dispatcher to design delivery routes and issue loading instructions for each truck as soon as orders for a given day are known. D ELIVERY and pickup by truck is an important activity of many firms which deal with farmers. Practically all manufactured feed and commercial fertilizer are hauled by truck during some phase of distribution. Milk and produce are picked up at the farm and after processing are delivered to the store or to the consumer by truck. Often trips involve servicing two or more stops where the sequence of stops is important in determining the length of the route. A principal factor affecting the cost of delivery is the distance traveled per unit of product delivered.' Thus, any procedure which will result in driving a shorter distance or spending less time en route while providing the same services can contribute to lower costs and improved marketing efficiency. The lockset method of truck route selection offers considerable promise of