Showing papers in "American Journal of Agricultural Economics in 1991"

Statistical Efficiency of Double-Bounded Dichotomous Choice Contingent Valuation

Abstract: The statistical efficiency of conventional dichotomous choice contingent valuation surveys can be improved by asking each respondent a second dichotomous choice question which depends on the response to the first question—if the first response is "yes," the second bid is some amount greater than the first bid; while, if the first response is "no," the second bid is some amount smaller. This "double-bounded" approach is shown to be asymptotically more efficient than the conventional, "singlebounded" approach. Using data from a survey of Californians regarding their willingness to pay for wetlands in the San Joaquin Valley, we show that, in a finite sample, the gain in efficiency can be very substantial.

Area-Yield Crop Insurance Reconsidered

Abstract: One of the more promising proposals for reforming the federal crop insurance program calls for both premium rates and indemnities to be based not on the producer's individual yield but rather on the aggregate yield of a surrounding area. Area-yield crop insurance can provide more effective yield-loss coverage than individually tailored insurance, without most of the adverse selection and moral hazard problems that have historically undermined the actuarial performance of the federal crop insurance program.

Cointegration Tests and Spatial Price Linkages in Regional Cattle Markets

Abstract: This analysis empirically evaluates spatial linkages in regional cattle markets using cointegration tests of regional price series. Several markets were not cointegrated over the 1980 through 1987 period. However, significant increases in cointegration of several regional livestock markets are observed through the 1980s. The increased cointegration parallels significant structural changes in the livestock industry. A formal analysis of market characteristics reveals that distances between markets, industry concentration ratios, market volumes, and market types have significant influences on cointegration relationships between markets.

Market Integration, Efficiency of Arbitrage, and Imperfect Competition: Methodology and Application to U.S. Celery

Abstract: This paper develops and applies a methodology to test for efficiency of interregional commodity arbitrage. Application of the methodology requires only time-series data on prices for alternative cities, regions, countries, or product forms. Yet, the approach is capable of generating evidence on a number of market parameters including market integration, arbitrage efficiency, the magnitude of marketing margins, product substitutability, and competitiveness of markets. Estimation is based on a switching regression model with three regimes: efficient arbitrage, relative shortage, and relative glut. Results from application of the model to U.S. celery marketing indicated significant departures from efficient arbitrage for both California and Florida celery.

Effects of Technological Change and Institutional Reform on Production Growth in Chinese Agriculture

Abstract: Recent rapid agricultural production growth in Chinese agriculture could be attributed to an increase in inputs, technological change, and institutional reform. An accounting approach was used to separate the relative contribution of these three factors. Institutional change, like the introduction of the household production responsibility system, has contributed to past growth in production. However, technological change is crucial to furthering production growth because of the limited potential for significant increase in the use of conventional inputs, in particular land. Continued institutional change must accompany corresponding technological changes.

Dairy Farm Efficiency Measurement Using Stochastic Frontiers and Neoclassical Duality

Abstract: This paper presents a stochastic efficiency decomposition model based on Kopp and Diewert's deterministic methodology. The stochastic model is used to analyze technical, economic, and allocative efficiency for a sample of New England dairy farms. The results suggest that mean economic efficiency for the farmers in the sample is about 70% and that, on average, there is little difference between technical (83.0%) and allocative (84.6%) efficiency. Analyses of the relationship between efficiency and four socioeconomic variables—farm size, education, extension, and experience—reveal that, despite some statistically significant associations, efficiency levels are not markedly affected by these variables.

On Testing the Structure of Risk Preferences in Agricultural Supply Analysis

Abstract: Risk preferences broadly affect many economic decisions when markets are incomplete. Common representations of risk preferences are constant absolute, relative, and partial relative risk aversion. Each of these preference classes has distinct impacts on choice. An econometric test for distinguishing the class of preferences is proposed and implemented for potato supply response in Idaho. The data reject constant absolute and partial relative risk aversion and are congruent with constant relative risk aversion.

Education and Innovation Adoption in Agriculture: Evidence from Hybrid Rice in China

Abstract: This paper uses the diffusion of F1 hybrid rice as a case for examining the effects of education on the adoption of new technology in China. A simple behavioral model that treats the adoption of hybrid rice as a portfolio selection problem is presented. The implications of the model are tested with farm-level data collected from a sample of 500 households in Hunan Province. The results from a dichotomous probit model and a two-limit tobit model are consistent with the hypothesis that education has a positive impact on the adoption of new technology.

Some Further Evidence on the Law of One Price: The Law of One Price Still Holds

Abstract: International trade models often postulate the existence of a representative price, i.e., the price which prevails at all markets. This is known as the "Law of One Price." In this paper, the law of one price is tested for seven commodities among four countries by explicitly considering transaction costs. The empirical evidence suggests that, in most cases, the law of one price cannot be rejected asa maintained hypothesis. Furthermore, for the remaining cases transaction costs seem to cause the failure.

Using Count Data Models in Travel Cost Analysis with Aggregate Data

Abstract: Estimators of recreational demand models frequently use continuous functional forms, such as ordinary least squares (OLS) on log transformed variables (e.g., Ziemer, Musser, and Hill). However, the nature of trip demand introduces complicating factors. First, trips occur in nonnegative quantities. Failure to control for this censoring will lead to biased estimation. Second, because trips are available only in integer quantities, the usual demand models, which correlate marginal quantity with marginal price, may be inapplicable. In light of these factors, a natural alternative is to use statistical models that explicitly recognize the "count" nature of trip demand. Several recent papers (e.g., Shaw, Smith, Grogger and Carson, Creel and Loomis) have applied count models to the travel cost model. These works largely have focused on truncated data sets based on choice-based samples. In this study the focus is on the older problem where zero-demanders are included. In particular, the application of several robust estimators of count models to aggregated data will be considered. The Poisson distribution forms the foundation for the count models examined in this study. Although the Poisson is a convenient distribution to work with, it imposes some stringent constraints on the demand distribution. In particular, the Poisson distribution assumes the variance of trip demand is equal to the expected value of trip demand. To loosen these constraints, a generalization of the Poisson, the negative binomial, is discussed. Robust estimation procedures, that permit further loosening of a priori assumptions are then reviewed. Permit data from the Boundary Waters Canoe Area are used to examine the effects of these count models on consumer surplus estimates and on coefficient variability.

Marketing Margins, Market Power, and Price Uncertainty

Abstract: This paper provides a conceptual and empirical framework for analyzing marketing margins in a noncompetitive food-processing industry facing output price uncertainty. The framework allows the decomposition of observed margins into components reflecting the marginal cost of the processing industry, oligopoly/oligopsony price distortions, and an output price risk component. The empirical procedure is applied to a time series of spreads between wholesale pork prices and farm prices of market hogs. The principal finding is that, while farm/wholesale margins are more consistent with competitive performance now than they were fifteen years ago, the output price risk component persisted throughout the sample period.

The On-Farm Costs of Reducing Groundwater Pollution

Abstract: Agricultural chemicals are a source of groundwater pollution in some areas. Regulatory options to reduce such nonpoint pollution imply costs to producers. By integrating plant simulation, hydrologic, and economic models of farm-level processes, this study evaluates on-farm costs of strategies to reduce nitrate groundwater pollution. The empirical focus is on intensively managed, irrigated farms in the Columbia Basin of Oregon. Results suggest that changes in timing and application rates of nitrogen and water reduce nitrate pollution with little loss in profits. Once such practices are adopted, further reductions in nitrates can be achieved only at increasing costs to producers.

Joint Risk Preference-Technology Estimation with a Primal System

Abstract: Applied studies of the firm in a risky environment have concentrated either on the firm's technology or on its risk preferences. These models result in generally inconsistent and inefficient parameter estimates. A primal model is proposed which allows a firm's preferences and technology to be estimated jointly in the presence of risk. The model is applied to Iowa corn production and estimated technology parameters are compared with those from other approaches. Modest risk aversion leads to inelastic (even backbending) per-acre supplies and input demands. Yield heteroskedasticity in inputs leads to supply heteroskedasticity in prices, especially for risk-neutral firms.

A Bayesian approach to explaining sequential adoption of components of a technological package

Abstract: Agricultural innovations are often promoted as a package-a new seed variety, a recommended fertilizer application, and other recommended cultivation practices. Nevertheless, many farmers adopt pieces of the package rather than the whole, in a sequential fashion. This paper presents a behavioral model which explains sequential adoption as a consequence of learning by adopting farmers. In order to learn more about the entire technological package, the farmer may adopt a part of the package. The model is shown to be consistent with observed patterns of sequential adoption.

The Farm-Retail Price Spread in an Imperfectly Competitive Food Industry

Abstract: In a previous article in this Journal, Gardner investigated the effects of three distinct forces affecting food system equilibria: shifts in retail demand, shifts in farm commodity supply, and shifts in marketing input supply. He derived comparative-static predictions about how the quotient of retail and farm prices-the "retailfarm price ratio"-would adjust to changes in each of these exogenous effects. The investigation was conducted within a framework that

Modeling Agricultural Growth Multipliers

Abstract: Agriculture's potential as an engine of third world growth depends, in large part, on the size of the production and consumption linkages it stimulates in rural regions. Current estimates of agricultural growth multipliers within rural regions vary widely, not only because economic structures differ across regions but also because the array of fixed-price models most commonly used embody widely differing basic assumptions. Among fixed-price models, the semi-input-output formulation projects the most plausible multipliers. But even they overstate the magnitude of growth multipliers by 10% to 25% according to the price-endogenous model developed here.

Advertising, Information, and Product Quality: The Case of Butter

Abstract: This study examines the roles of cholesterol information and advertising in explaining consumption trends for fats and oils, focusing on butter. Results suggest increased consumer awareness of the health effects of blood cholesterol has contributed to the secular decline in butter consumption in Canada. Although consumers' responses to negative information appear to outweigh their responses to positive information, the industry advertising campaign launched in 1978 by the Dairy Bureau of Canada has had a positive effect on butter demand.

Marketed Surplus under Risk: Do Peasants Agree with Sandmo?

Abstract: Using a newly defined notion of aversion to income risk, the behavior of the marketed-surplus producer under price risk is characterized. Unlike the familiar case first examined by Sandmo, output depends on both ordinal preferences for goods and on risk attitudes. Conditions are found that yield an output level under risk that is smaller than under certainty. If these conditions do not hold, both risk and risk aversion may have a positive effect on output. Implications for econometric studies of risk attitudes are considered and illustrated with an example. Finally, we examine the effect of uncertainty on the peasant's long-run equilibrium.

Valuing the Multidimensional Impacts of Environmental Policy: Theory and Methods

Abstract: A theoretically consistent framework is developed for valuing the multidimensional impacts of environmental policy. Conventional benefit estimates are shown to be biased because of the presence of substitution and complementarity effects in valuing policy impacts. Procedures are developed for implementing a valid framework. Consistent with theory, empirical results indicate significant substitution effects in valuing environmental conditions across different geographic regions.

Production, Hedging, and Speculative Decisions with Options and Futures Markets

Abstract: This paper analyzes production, hedging, and speculative decisions when both futures and options can be used in an expected utility model of price and basis uncertainty When futures and option prices are unbiased, optimal hedging requires only futures (options are redundant) Options are used together with futures as speculative tools when market prices are perceived as biased Straddles are used to speculate on beliefs about price volatility and to hedge the futures position used to speculate on beliefs about the expected value of the futures price Mean-variance analysis in general is not consistent with expected utility when options are allowed One extension of Sandmo's expected utility model of the competitive firm under price uncertainty considers the use of futures or forward contracts Danthine; Holthausen; and Feder, Just, and Schmitz show that without basis uncertainty the optimal output level is not affected by price risk; also, with an unbiased futures price, the optimal hedging level of the competitive firm is the full hedge, while a biased futures price will result in a partly speculative hedge Related works include Batlin, who allows for basis risk in the form of imperfect time hedging; Paroush and Wolf, and Antonovitz and Nelson, who consider basis risk with the simultaneous availability of futures and forward contracts; Grant, Honda, Losq, Newbery and Stiglitz, and Rolfo, who allow for production uncertainty; Chavas and Pope, who allow for production uncertainty and hedging costs; and Karp, who considers the problem in a dynamic setting This paper provides a further extension of this analysis by allowing options as a means of coping with price risk With the introduction of commodity options on futures for many commodities in the 1980s, this problem appears relevant to a number of production settings, especially in agriculture Specifically, this paper considers the simultaneous choice of a production level and of hedging levels of futures and options within the general expected utility model The model allows for basis uncertainty, but the production process is assumed to be nonstochastic

Local Economic Conditions and Wage Labor Decisions of Farm and Rural Nonfarm Couples

Abstract: Effects of geographical differences in local economic conditions on wage labor demand and wage labor participation decisions of rural couples are examined for Current Population Survey households 1978–82. Wage premiums are shown to exist for localities anticipating labor demand growth, higher unemployment rates, larger share of employment in services, and higher costs of living. These effects are stronger for males than females. Effects of local economic conditions on the probability of wage work are consistent with expected market wage and reservation wage effects, and for farm households the probability of wage work increases when expected farm output prices decline or the wage increases.

Formally Testing the Present Value Model of Farmland Prices

Abstract: This paper applies recent statistical developments in the study of stock market price movements to study the plausibility of the constant expected returns version of the present value model as an explanation of farmland prices. Using Iowa farmland price and rent data over the 1921–86 sample period, formal test results indicate that, although farmland price and rent movements are highly correlated, price movements are not consistent with the implications of this model. There appear to be persistent predictable excess positive and/or negative returns in the Iowa farmland market.

Elasticities in AIDS Models: A Clarification and Extension

Abstract: expenditure shares (i.e., InP = Ij wj InP,). A common approach is to treat expenditure shares as constant parameters in the Stone's index when taking derivatives for elasticities. We developed corrected formulas for uncompensated price elasticities by using derivatives that took into account the effects of price changes on the shares in the price index. In the process, and as a side-issue, we also noted (p. 443) that the differences in uncompensated elasticities in the literature (ri)

Evaluating Prior Beliefs in a Demand System: The Case of Meat Demand in Canada

Abstract: An almost ideal demand system for meats is estimated using Canadian data. A Bayesian approach is used to impose inequality restrictions on substitution elasticities, via Monte Carlo integration and importance sampling, in order to conform with prior beliefs about curvature and monotonicity restrictions and substitution relationships. Results are more consistent with the concavity and monotonicity restrictions from demand theory than with the added restriction that all meats are substitutes.

Dietary Effects of the Food Stamp Program

Abstract: Based on data from the 1979–80 Survey of Food Consumption in Low-Income Households, this paper estimates the effects of changes in cash income and the food stamp benefit on household nutrient availability, while controlling for two potential sources of selection bias. The major finding of the empirical analysis is that the estimated dietary effects of changes in food stamp benefits are considerably larger than those resulting from changes in cash income, with estimates of the ratios of the MPC for the food stamp benefit to the cash-income MPC ranging from three to seven across nutrients. No significant evidence of selection bias was found, and the estimated dietary effects of food stamp benefits from the selection bias models are similar to those from the basic model estimated by ordinary least squares regression.

Agribusiness Competitiveness across National Boundaries

Abstract: International competitiveness has become an extremely important topic in Canada. It is high on the political agenda because it is high on the economic agenda. It is particularly important for Canada's agri-food industry. The Canadian food sector evolved during the past half century behind a roughly 20% protective tariff wall, which is being removed by the Canada-U.S. Trade Agreement (CUSTA). The sector must adjust. While competitiveness is a major issue and topic of discussion, it has not been well defined or measured. Moreover, untangling the web of causality between elements of public policy, private management strategy, and the food industry's competitive state is fundamental. Thus, in this paper we develop a framework for assessing the competitive state of an industry. The objectives are to (a) develop a framework for assessing an industry's competitiveness, (b) report on the competitive state of five food-processing industries, and (c) assess the public policy implications that arise from application of the framework for these five industries.

Impacts of Structural Adjustment Programs on African Women Farmers and Female-Headed Households

Abstract: The structural adjustment programs (SAPs) initiated by the International Monetary Fund (IMF) and the World Bank and supported by donors are stimulating many tropical African economies through an infusion of foreign exchange, increased agricultural prices, devaluation of overvalued currencies, improved marketing policies, trade liberalization, and increased competition from the private sector. Recently, however, debates about the pros and cons of SAPs have ensued.

Interactions between Agricultural and Resource Policy: The Importance of Attitudes toward Risk

Abstract: Using a method proposed by Meyer for deriving comparative statics results in the presence of risk, this paper analyzes the effects of various agricultural and environmental policy alternatives on the choices of a risk-averse producer with a Just and Pope production function. Many commonly held beliefs about policy effects are not supported unambiguously by economic theory. For example, a tax on pesticides will not necessarily reduce pesticide use or average output, and a reduction in price of agricultural output will not necessarily lead to a reduction in use of water or agricultural chemicals.

Discounting Human Lives

Abstract: The future costs of regulatory programs to protect human health are routinely discounted, but the lives they save in the future are not. To shed light on the public's attitude toward the discounting of human lives, researchers at Resources for the Future asked 2,600 individuals to choose between one hypothetical program that would save lives immediately and another that would save lives in 5, 10, 25, 50, or 100 years. From the responses, they inferred the number of lives that must be saved in the future to make people as content as saving one life today, compared this implicit discount rate to the respondents' discount rate for money, and identified several factors that affect discount rates for human lives.

The Creation of Dominant Firm Market Power in the Coconut Oil Export Market

Abstract: Legal and institutional changes that centralized control of the Philippine coconut oil refining and exporting industries enabled the Philippines to exercise some of its potential dominant-firm market power. If the elasticity of demand for coconut oil continues to increase. in part due to concerns about the health risks from eating saturated fats. Philippine exports will increase slightly while the price and Philippine revenue will fall significantly within the next decade.