Showing papers in "American Journal of Agricultural Economics in 1981"

Common Property Externalities: Isolation, Assurance, and Resource Depletion in a Traditional Grazing Context

Abstract: Institutional alternatives to common property externalities are wider than argued by private exclusive property rights advocates. The "tragedy of the commons" is not a prisoners' dilemma, characterized by the strict dominance of individual strategies. The nonseparable common property externality is an "assurance problem." The assurance problem provides striking perspectives in analytical and policy terms. It redefines the problem of the commons as one of decision making under uncertainty. Institutional rules innovated by the group to reduce uncertainty and coordinate expectations can solve the problem of overexploitation. Rules come in many forms, and private property is only one.

Measuring the Cost of Time in Recreation Demand Analysis: An Application to Sportfishing

Abstract: Since the work of Cesario and Knetsch, economists have recognized that the opportunity cost of time plays an important role in determining the demand for outdoor recreation. The opportunities one has for spare time are more significant for consumption of time-intensive outdoor recreation activities than for other commodities, especially nondurables. Bishop and Heberlein illustrate "the overwhelming importance of time costs to final [recreational] values. . . . Total consumer surplus is nearly four times as large . . . [when] time costs are added at half the income rate . . . [as when] time costs were set at zero" (p. 21). Despite the recognition, economists have neither successfully integrated the costs of time with the methods of recreational demand analysis nor reached a consensus on how it should be measured. Brown, Charbonneau, and Hay state, "Finally, the apparently crucial importance of how opportunity cost of time is handled needs further work. While we are convinced it is an appropriate concept, . . . exactly how it should be included and measured S. . remains to be determined" (p. 24). Several approaches have been taken to include it in the travel cost method. One approach (Brown and Nawas, Gum and Martin) suggests that time in transit be considered as a separate independent variable. Another approach (Bishop and Heberlein; Brown, Charbonneau, Hay; Nicols, Bowes, Dwyer; Cesario and Knetsch) measures the cost of time and adds it to other costs. Several approaches have been suggested to measure time costs. One approach is simply to choose an hourly wage, e.g., $2.00 per hour, or perhaps the minimum wage rate. A more flexible but still ad hoc approach is to use some proportion of the individual's wage rate as the opportunity cost of time (Nichols, Bowes, Dwyer). The proportion is usually taken from independent studies and used to value the travel time. This approach is better than using a constant opportunity cost of time because it allows variation across individuals. It suffers because the choice of the percentage of the wage rate is arbitrary, independent of the sampled population. Cesario has discussed the consequences of ignoring time costs and the differences in values arising from alternative measurement approaches. In this paper, we argue that the opportunity cost of time is some proportion of the individual's market wage rate or income per hour and that this proportion can be determined from sample data. This method permits the proportion to vary from one study to another, rather than imposing either an arbitrary estimate or one from a sample different from the study's sample.'

Evaluating Returns to Agricultural Research: A Review

Abstract: This paper reviews and compares the most common approaches used to evaluate public agricultural research investment. Ex post studies fall into two major groups: (a) consumer and producer surplus analyses, estimating average rates of return to research, and (b) production function analyses, estimating marginal rates of return to research. Ex ante studies fall into four groups: (a) those using scoring models to rank research activities, (b) those employing benefit-cost analysis to establish rates of return to research, (c) those using simulation models, and (d) those using mathematical programming to select an optimal mix of research activities.

Commodity Price Forecasting with Large-Scale Econometric Models and the Futures Market

Abstract: This paper compares the accuracy of major commercial price forecasts for corn, wheat, soybeans, soybean oil, soybean meal, cotton, live cattle, and hogs. The price-forecasting information in futures prices is evaluated by comparison. The results among commercial forecasters are mixed, but futures prices perform relatively better on average although not universally so. These results have important implications for operational risk management.

Price Distortions in Agriculture and Their Effects: An International Comparison

Abstract: The central thesis of this paper is that agricultural pricing policies pursued by developing countries produce effects which are diametrically opposite to those produced by the pricing policies of many developed countries, and that the policies of both are costly in terms of global welfare. In general, the agricultural sector in developing countries is heavily taxed while that in the developed countries receives substantial price protection. The effects of agricultural price distortions on output, consumption, trade and rural employment are estimated for nine countries. In addition, the effects of price distortions on the distribution of income between producers and consumers, on government revenue and foreign exchange, and the net social losses of the policies are calculated. The results indicate that there are large income transfers and impacts on migration from the rural to the urban sector in developing countries and from the urban to the rural sector in developed economies.

Effects of Exchange Rate Changes on U.S. Agriculture: A Dynamic Analysis

Abstract: An econometric model of the wheat, corn, and soybean markets is used to examine the dynamic effects of exchange rate fluctuation on U.S. commodity markets. Exports and agricultural prices are found to be sensitive to movements in the exchange rate, while domestic factors, such as disappearance and inventories, are less sensitive but still responsive. Dramatic short-run adjustments in prices and exports are followed by less dramatic but significant longer-run adjustments. Thus, the hypothesis of elastic response to the exchange rate seems particularly relevant for the short run.

Estimating Farm-Level Input Demand and Wheat Supply in the Indian Punjab Using a Translog Profit Function

Abstract: Application of the translog profit function to farm-level data from Punjab, India, allowed a more disaggregated analysis of the farm production structure compared to the case of Cobb-Douglas formulation. The flexibility afforded by translog formulation permitted measurement of the different impacts that exogenous variables have within and across input demand and output supply functions. Policy-relevant elasticity estimates with respect to variable inputs and output prices, fixed inputs, a few soil-related "state-of-nature" variables measured by soil analysis, and education, which are usually considered constraints to farm production, were obtained, and two examples of policy applications were developed.

Farm Level Economics of Soil Conservation in the Palouse Area of the Northwest

Abstract: Control theory is applied to the farm level economics of soil conservation in a model which uses depth of topsoil and percentage of organic matter therein as the two state variables. An approximately optimal decision rule was tested against the optimal rule and found to be excellent; errors in the decision rule were less than one percent within the region in state space of practical consideration. Results suggest that intensive wheat production under modem farming practices and heavy fertilization is the most economic cropping system in both the short and long run in the Palouse Area except under low wheat prices.

An Interval Approach to Measuring Decision Maker Preferences

Abstract: A method for constructing interval measurements of decision makers' absolute risk-aversion functions is presented. Under this new procedure, the form of the absolute risk-aversion function is not restricted, and the precision of the interval measurement can be determined by the analyst. Interval measurements are used with the criterion of stochastic dominance with respect to a function to order uncertain choices. An empirical test shows that interval measurements exclude preferred choices from consideration less often than do single-valued utility functions and are more discriminating than first- and second-degree stochastic dominance.

Recreational Demands for Maintaining Instream Flows: A Contingent Valuation Approach

Abstract: Recreational uses of streams, although nonconsumptive, increasingly conflict with traditional off-stream uses of water in arid regions. Recreational demands for instream flows have collective good attributes such that the recreationists' preferences may be inadequately reflected in water allocation decisions. The contingent valuation approach was adapted to impute instream flow shadow prices from a sample of recreationists on the Cache la Poudre River in northern Colorado. During periods of relatively low flows, the estimated instream flow marginal value exceeds the marginal value of water in irrigation, suggesting a need for altered water allocation policies.

The Inverse Relationship between Productivity and Farm Size: A Test Using Regional Data from India

Abstract: The farm size-productivity debate for India needs little introduction; it has occupied a prominent position in the agricultural economics literature since 1962, when Sen observed that Indian farm management data revealed an inverse relationship between farm size and yields per acre. Since then, no fewer than twenty journal papers have appeared on this subject (Sen 1975). The objective of this paper is to test two hypotheses that were either not given enough attention or left unresolved in the debate. The first is that the inverse relationship is valid for all of Indian agriculture; it is not merely a phenomenon observed in a few sample villages. This means a test of the hypothesis that the small farm sector as a whole is more productive than the large farm sector in Indian agriculture. The second hypothesis is that the inverse relationship is true only of a traditional agriculture, and that it breaks down with technical progress. A methodology is developed below which uses cross-sectional regional data to test the two hypotheses simultaneously. On applying this methodology to Indian district-level data (272 districts) for 1970-71, it is found that the hypothesis of the small farm sector being more productive than the large farm sector cannot be rejected at low levels of agricultural technology, but can be rejected at higher levels. This suggests that the inverse relationship between yields and farm size, although valid for a traditional agriculture, cannot be assumed to exist in an agriculture experiencing technical change.

Participation in Farm Commodity Programs: A Stochastic Dominance Analysis

Abstract: Grube correctly argues that mini-max and maximax criteria can help analysts determine the interval in which, for a given set of preferences, there will be changes in the preferred distribution. The criteria is of less value when simulations are used to generate distributions without exact a priori knowledge of the random-draw of order statistics. We will argue that in most cases, one can go even further and solve for the specific break-even level of risk aversion. This should simplify the procedures commonly used to rank risky prospects. The author calculates that for the data presented, the mini-max critical value is -0.000003 for risk preferrers and 0.000002 for risk avoiders. He concludes that these are low values when compared to the range originally considered, -0.04 to 0.03. Since his numbers fall within our range, this suggests that our range could have been narrower than it was, but clearly our range did contain the values he calculated. It is noteworthy that when the smaller coefficients were used, the relative rankings of choices remained unchanged. Grube concludes that "KP's results are correct in the sense that they give a correct ranking of the order in which alternatives would be chosen by decision makers with varying absolute risk aversion coefficients." Since, ultimately, risk analysts are interested in the relative ranking of risky prospects, this would suggest that our results are more robust than the author implies in his remarks. While Grube has suggested a means of identifying the interval of interest, we would argue that in many cases one could go further and solve for the break-even level of risk preference. The break-even level would be that value at which there is a switching in the dominance of one distribution over another. Using results developed by Hammond, it should be possible to simplify both the calculation and presentation of stochastic dominance results by solving for the break-even level. Two conditions must be satisfied in order to apply Hammond's results. First, constant risk aversion must be assumed. While the use of utility functions exhibiting decreasing risk aversion has been advocated in the theoretical literature and supported somewhat by empirical studies which have assessed utility functions, in most applications constant risk aversion is assumed. This is largely because wealth data is frequently unavailable or of questionable accuracy. Thus, risk analysts typically assume that a decision maker's utility function can be approximated over the relevant range by a constant risk aversion function such as the negative exponential function: U(X) = 1 - e-ax

The Price-Forecasting Performance of Futures Markets for Live Cattle and Hogs: A Disaggregated Analysis

Abstract: Four hypotheses about the price-forecasting performance of live cattle and hog futures are tested using disaggregated data. Live cattle futures are found to have inadequate forecasting performance for each hypothesis and do not provide better forecasts than lagged cash prices. Live hog futures perform well for three hypotheses, but not when economic conditions are unstable. Hog futures provide better forecasts than lagged cash prices. The analysis does not support the contention that these futures markets are agencies for rational price formation.

A New Analytical Framework for the Fertilization Problem

Abstract: A novel control model for technical and economic analysis of fertilizer recommendations is based on Liebig's Law of the Minimum, Mitscherlich's relative yield theory, and the notions of yield plateau and soil fertility carry-over. The empirical model consists of a multistage separable programming specification which maximizes the discounted stream of net revenues subject to crop response and fertility carry-over functions. The model is applied to the wheat-soybean cropping system in Southern Brazil. It is found that, while the optimal fertility target levels are within a small range of those determined by Brazilian agronomists, their maintenance recommendations could be substantially improved. control, relative yield, yield plateau. The analysis of yield response to fertilizers has been recently enriched by an original proposal of Cate and Nelson. These soil scientists suggested that for agronomic purposes and for certain crops, it may be convenient to postulate that the relationship between yield and major nutrients is a linear response and plateau (LRP) function. They argued that this simplified specification is nonetheless capable of capturing the essential information of yield

Farmers' Credit Risks and Liquidity Management

Abstract: Credit risks are unanticipated variations in costs and availability of credit that arise from forces in financial markets or from lenders' responses to risks in agricultural markets and farmers' creditworthiness. An extension of mean-variance portfolio theory shows how credit risks combine with other financial and business risks to determine total risk. Empirical evidence from lender surveys about risks shows that farmers' credit is positively correlated with changes in farm income, although the correlation is stronger for capital credit than for operating credit, and that variability in fund availability from rural banks has contributed to high credit risks.

Determinants of Hunter Participation: Duck Hunting in the Mississippi Flyway

Abstract: In this paper the authors study the relationship between habitat availability, hunter success, and the rate and intensity of participation in duck hunting in the Mississippi Flyway. Using socioeconomic data from the 1975 National Survey of Hunting, Fishing and Wildlife Associated Recreation, and waterfowl habitat data from the 1970 Flyway Habitat Management Unit Project, they estimate probability and intensity of participation equations for duck hunting. The analysis differs from previous population-specific recreation studies in (a) the narrowly defined activity, (b) more precise definition of supply variables, (c) use of variables representing distance to hunting sites, and (d) the use of logit analysis to estimate participation probability equations.

Food Product Proliferation: A Market Structure Analysis

Abstract: The frequent introduction of avowedly novel products is a common marketing strategy of leading food manufacturers. Over half of all new packaged consumer goods are foods or beverages, yet little is known about the amounts, patterns, and causes of product proliferation. Alternative definitions and analytical models of product proliferation are reviewed, focusing on those derived from Hotelling spatial-equilibrium theory. A simple regression model is used to test the relationship of market structure to the number of new food products introduced. The results verify that food product proliferation is a mode of industry conduct arising from markets characterized by differentiated oligopoly.

On the Power of Macroeconomic Linkages to Explain Events in U.S. Agriculture

Abstract: The significance for agriculture of macroeconomic events in the 1980s depends upon what elements in the macroeconomy are most strongly linked to agriculture and how these linkages function. It is idle to say, for example, that inflation poses particularly serious problems for agriculture in the 1980s unless we have evidence that inflation generally causes particularly serious problems for agriculture. This paper concentrates on the past literature and current state of evidence on such questions. The final section considers the possibility of scientifically defensible forecasts for the 1980s. It is short.

The Potential Role of Multilevel Programming in Agricultural Economics

Abstract: This paper discusses a new class of problem related to mathematical programming but with two separate decision makers in hierarchical relationship, each with his own objective function and control over distinct but interacting variables. The relationship of this problem to agricultural (energy and environmental) policy problems is developed, together with the relationship of this new problem structure to mathematical programming, game theory, control theory, and principal agent theory. Suggested computational approaches are reviewed, along with the solution to two illustrative examples of the use of the technique.

Predicting the Diffusion of Improved Pastures in Uruguay

Abstract: Research suggests the logistic curve is the characteristic diffusion path for new technologies. Econometric analysis of fertilized grass‐legume pastures in Uruguay indicated that their diffusion during the first years following introduction also followed a logistic path. Some departure from a simple logistic shape was explained by including beef and fertilizer prices within the diffusion framework. Both the rate and limit of diffusion were positively related to changes in the technology's profitability, but the estimated price elasticity of each was low. Extrapolation predicted that a ceiling equal to 12% of Uruguayan pasture area would be reached in 1980.

The Role of Land Reform in Economic Development: Policies and Politics

Abstract: As the extensive literature on the subject attests, the issue of land reform has been and remains heatedly debated.1 The latest massive demonstration of interest came with the 1979 World Conference on Agrarian Reform and Rural Development, where representatives of no less than 145 nations and three liberation movements agreed that "equitable distribution and efficient use of land ... are indispensable for rural development, for the mobilization of human resources, and for increased production for the alleviation of poverty" (FAO). At one time or another, but especially since 1960, virtually every country in the world has passed land reform laws. Yet, the record is far more modest than the promise: (a) in spite of decades, if not centuries (Tuma), of land reform activities, landownership remains extremely skewed, concentration of landownership is almost universally increasing, the mass of landless is growing rapidly, and the extent of rural poverty and malnutrition has reached horrendous proportions; and (b) in spite of widespread agreement on the need for land reform, there are virtually no significant ongoing land reform programs except under extreme political pressures (revolutionary in El Salvador and postrevolutionary in Nicaragua, Mozambique, and Angola). In several countries, the progressive gains achieved by land reform programs are being either eroded by the forces of economic growth (Mexico, Venezuela, and South Korea) or purposefully canceled by public policies (Chile). The question I want to explore in this paper is: Why this blatant discrepancy between rhetoric and reality? Or, to put it another way, why is land reform no longer a significant policy issue even though it remains an important political issue in most countries of the world?2 To answer, we need first to explore, in a positive sense, what has been the nature of different land reforms that occurred in the past; what were their purposes, achievements, and limits. This will be done by developing a typology of land reforms in the third world, because it is essential to distinguish carefully among a wide variety of reforms. Following the approach of political economy, I will do this in the context of modes of production, social class structure, and types of land tenure.

Composite Forecasting: An Application with U.S. Hog Prices

Abstract: Producers, processors, and distributors of agricultural commodities make decisions in a risky environment. Uncertain production and relatively low price elasticities of demand provide the setting for rather large fluctuations in commodity prices. Sensible decision making thus requires information about the likelihood of many alternative outcomes. Such information can be obtained from both private and public sources through price forecasts. Decision makers often have several forecasts on

Portfolio Theory and the Demand for Futures: The Case of California Cotton

Abstract: This paper examines the simultaneous choice of cropping patterns and futures positions. It derives the demand for hedging as a function of the price of a hedge and the crop choice set; it estimates these functions for California cotton farmers. It finds that both the costs of hedging and the opportunity to diversify risk by growing other crops substantially change the optimal hedge for California cotton farmers.

The Effects of Changing Input Costs on Food Prices

Abstract: The relationships between changes in food sector input costs and retail food prices are examined. Results indicate that increases in factor prices pass quickly to consumers, within two quarters for most foods. In addition, rising farm-level prices and substantial increases in nonfarm resource prices appear to explain why food prices rose more rapidly than nonfood prices in the 1970s. The analysis is based on a twenty-equation econometric model of the food-price determination process, specified following Popkin's "stage of processing" approach. Causality and validation test statistics for the model are presented.

The Inverse Relationship between Size of Land Holdings and Agricultural Productivity

Abstract: The important relationship between the size of land holdings and agricultural productivity in developing countries has been debated intensely. From early Soviet debates to the extensive literature generated by the release of Farm Management Survey (FMS) data in India, the question of returns to scale and input productivities (primarily for land) in traditional agriculture has been confused and clouded by strong positions and ideological predilections. Bhagawati and Chakravarty, Saini (1969), and Bharadwaj provide extensive bibliographies on the theoretical and empirical aspects of this problem in the Indian context. Briefly, Sen (1964, 1966), Mazumdar (1963, 1965), C.H.H. Rao (1966, 1970), Khusro, Saini (1971), Bhattacharya and Saini, more or less endorse an inverse relationship between the land size and its productivity. A. P. Rao (1963) and Rudra and Bandhopadhyay do not believe in the existence of an inverse relationship and argue that no systematic relationship can be established between any two variables describing land size and productivity. Bharadwaj and others dismiss the statistical validity of an inverse relationship, but generally accept it as a "stylized fact." The approach used in these statistical studies is to employ aggregate, average or farm level data within a village or among different villages for all crops or a few specific ones. Various concepts of productivity and input variables are used. The actual regressions use linear or log-linear functional forms. Using the pooled FMS data for several states in South India, this paper makes an attempt to reexamine, in a more general way, the relationship between the size of land holdings and agricultural productivity. This study employs the transcendental logarithmic (translog) function to formalize the relation between output and an arbitrary number of inputs. The translog function is not locally constrained by assumptions of homogeneity or additivity. Estimates of output elasticity with respect to land size for various values of cooperating inputs will indicate whether the alleged inverse relationship holds in any or all circumstances.

Evaluating the Food and Agriculture Act of 1977 with Firm Quadratic Risk Programming

Abstract: Federal agricultural commodity programs generally have been assumed to reduce the income risk for farm firms, but limited empirical research exists on this proposition. This paper presents a study of the impact of the Food and Agriculture Act of 1977on income risk for a representative farm in Georgia. The model is used to derive an E-V frontier for a firm not participating in the program and for the same firm that is participating in the program. Results indicate that participation dominates nonparticipation except for higher level of expected net income.

An Opportunity Cost View of Fixed Asset Theory and the Overproduction Trap

Abstract: In fixed asset and exit barrier theories, durable asset valuation is based upon acquisition prices, yielding downwardly biased rate-of-return estimates and erroneous implications that excess resources become trapped in production when product price expectations fall. Conventional asset valuation based on opportunity cost shows that excess resource applications are incompatible with rational producer behavior. Market failure conclusions of overproduction trap models are shown to be unfounded. A review of recently published agricultural economics texts illustrates how use of fixed asset theory in the college classroom obscures the concept of choice-influencing cost and the rule of resource allocative efficiency.

Optimal Choices among Alternative Technologies with Stochastic Yield

Abstract: Division of Agrir.ultural Sciences UNIVERSITY OF CAt-IFORNIA of California, Berkeley. of agricultural and resource economics J ~orking Paper ~\), \55 ~ept. L University Working Paper No. ISS OPTIMAL (}fOlCES AJvDNG ALTERNATIVE TEGINOLOGIES WIlli STOCHASTIC YIELD Joseph Yassour, David Zilberman, and Gordon C. Rausser :: ~,·:.>~ ;· :ll·':i f ~~:'; :J ; ~J;\TiON 0;:- c.,-:: lC:)LTU::,\ L CSONOMIC::; ~_; ::in!, roy SFP Z 3 1980 California Agricultural Experiment Station Giannini Foundation of Agricultural EconomicS September 1980

Interrelationships between Monetary Instruments and Agricultural Commodity Trade

Abstract: During the last decade agricultural economists have devoted increasing attention to the macroeconomic aspects of agricultural problems. Indeed, a recent presidential address to the American Agricultural Economics Association (Tweeten) centered on the macroeconomics of agriculture. Given the currency of the monetary approach to macroeconomics, it is not surprising, therefore, that there is also a growing interest in the effects of monetary instruments and monetary phenomena on agricultural commodity trade. In this paper I shall discuss what I feel are some of the most pertinent issues that researchers must address in this area. Before we proceed too far with our discussion, it is important to define what I mean by a monetary instrument. Perhaps arbitrarily, I reserve the term "monetary instrument" for those macroeconomic variables which are primarily determined within domestic or international monetary markets. Obvious examples are the level of the money supply, interest rates, and exchange rates. I justify the term instrument by noting that as far as the agricultural sector is concerned these variables are, by and large, predetermined. For example, the levels of the money supply and interest rates in the United States are to a large extent determined by the policy of the Federal Reserve. Similarly, the price of the currency-the exchange rateis ultimately determined by the demand and the supply for the currency and thus at least partially by governmental policy. The first step in any attempt to outline research needs and goals is an identification of what has been done in the past. Although the literature on the macroeconomics of agriculture is farily large and rapidly expanding, Eckstein and Heien, Lamm, Schuh (1976), and Tweeten are important examples, relatively li tl attention has been given to the effect of monetary instruments on agricultural trade. What attention has been given to this area of resea ch has revolved mainly around the role of exchange rates in determining agricultural exports and prices. Thus, it is logical to start our discussion with a brief survey of the literature on exchange rates and agriculture.

Farm Size Evaluation in the El Paso Valley: A Survival/Success Approach

Abstract: Policy makers and agricultural economists in the United States have long been interested in the effects of size on farm survival and success. Most farm size studies to date have concentrated on economic efficiency and have failed to incorporate the effects of uncertainty, time, income taxes, financial considerations, and variation in year-to-year net cash flows on the survival/success of different size farms. A dynamic Monte-Carlo simulation-programming model was developed and used to analyze the projected survival/success of four alternative farm sizes for the El Paso Valley. For farms in the El Paso Valley, the projected chances of survival and success increase as farm size increases from 160 to 960 acres and/or beginning equity level increases from 25% to 100%.