Showing papers in "American Journal of Agricultural Economics in 1994"

Contingent Valuation and Social Choice

Abstract: The contingent valuation method for estimating the existence value of natural resources is examined for psychophysical robustness, statistical reliability, and economic sensibility. Extensions of standard models for willingness‐to‐pay, and suitable econometric techniques for analyzing these models, are developed. The analysis is applied to a series of experiments on the value of preserving wilderness areas in the western United States. The results call into question the reliability of the CV method for estimating existence values.

Pesticides, Productivity, and Farmer Health: A Philippine Case Study

Abstract: Health is recognized as one of the most important components of the human capital of rural people in developing countries. There is a growing body of literature showing the productivity effects of health associated with nutrition (e.g., Bliss and Stern, 1978;Strauss, 1986;Deolalikar, 1988;Pitt, Rosenzweig, and Hassan, 1990). In this literature, the productivity effects of health are inferred either by correlating health indicators with wages or by including health indicators in an agricultural production function. The human capital literature also has demonstrated that farmer education plays an important role in the allocative and technical efficiency of farmers (Welch, 1970; Schultz, 1975).

Joint Estimation of Risk Preference Structure and Technology Using Expo-Power Utility

Abstract: A method is developed to permit joint estimation of risk preference structure, degree of risk aversion, and production technology. The method is implemented using the Expo-Power utility function, which imposes no restrictions on risk preference structure. The empirical application uses data from a sample of Kansas wheat farmers Evidence rejects the null hypothesis of risk neutrality and suggests that Kansas farmers exhibit decreasing absolute risk aversion and increasing relative risk aversion. Results also show that combined estimation of production function parameters with the utility function parameter is more efficient than is separate estimation of each.

Adoption of Emerging Technologies Under Output Uncertainty

Abstract: A model of divisible technology adoption under incomplete information dissemination and output uncertainty is developed. We identify economic and subjective factors affecting technology adoption and its intensity. Empirical estimation employs a mixed dichotomous-continuous framework with nonrandom sample selection. Producers' adoption intensity is conditional on their knowing about and deciding to adopt the new technology. Using survey data on bST (bovine somatotropin) adoption among Texas dairy producers, we find that larger and more educated operators are likely to adopt more intensively. Traditional dichotomous adoption models without sample selection significantly overestimate the adoption rate.

Using Shadow Wages to Estimate Labor Supply of Agricultural Households

Abstract: With few exceptions, most studies of the labor demand and supply decisions of agricultural households in developing countries have relied on the empirical advantages of separability. Given the questionable nature of some of the assumptions sufficient for separability, I apply a recent methodology that accounts for the simultaneity between the production and consumption decisions of a farm household. Using data from rural India, direct estimates of the marginal productivities (shadow wages) of family male and female labor are derived from a Cobb-Douglas agricultural production function. The estimated shadow wages and income are then used as regressors in a structural model of labor supply.

Evaluating the Linearized Almost Ideal Demand System

Abstract: Linearizing the Almost Ideal Demand System (LAIDS) by recourse to the Stone share weighted price index is common practice. Two issues are addressed here. First, scrutiny of the errors-in-variables implications of the linearization reveals that, not only is the SUR estimator inconsistent, but a consistent IV estimator cannot be constructed. Second, some alternatives to the Green-Alston elasticities specifically designed for the LAIDS model are developed, but neither these nor the Green-Alston elasticities are found to have any advantages over the conventional elasticity formulae. Some errors in the Green-Alston (1990) paper are corrected. The inconsistency and elasticity issues are documented by a Monte Carlo investigation.

Multicrop Production Decisions in Western Irrigated Agriculture: The Role of Water Price

Abstract: Applying a model of the multioutput firm, econometric results are reported for irrigated production in four multistate regions of the American West. Cross-sectional microdata from the Farm and Ranch Irrigation Survey and limited-dependent variable methods are used to estimate crop-choice, supply, land allocation, and water demand functions for field crops. Farm-level water demand is decomposed into the sum of crop-level water demands, and crop-level demands are further separated into an extensive margin (land allocations) and intensive margin (short-run water use). Response to water price (measured as groundwater pumping cost) occurs primarily at the extensive margin.

Human Capital, Producer Education Programs, and the Adoption of Forward-Pricing Methods

Abstract: Using a sample of 509 Kansas producers, we evaluate factors affecting adoption of forward pricing methods. We focus on producers' human capital accumulation and its effect on adoption of forward-pricing techniques. Probit models are employed to evaluate producers' participation in educational programs and their forward-pricing adoption decisions. Tobit models are employed to evaluate individual levels of adoption of these techniques in the marketing of wheat, corn, grain sorghum, soybeans, and cattle.

Links Between Nonfarm Income and Farm Investment in African Households: Adding the Capital Market Perspective

Abstract: Farm household surveys in the 1970s and 1980s showed that nonfarm activities provide an important share of household income, contrasting with the conventional image of rural African households as deriving their food entitlement almost exclusively from the land (e.g., Matlon; Collier and Lal; Low; Reardon et al.; Haggblade, Hazell, and Brown). Much of the literature on nonfarm income has concentrated

Maintaining and Testing Separability in Demand Systems

Abstract: We derive a general elasticity representation of the necessary and sufficient conditions for direct weak separability of the utility function. Parametric restrictions required to implement the separability conditions are presented for three common demand systems: the Almost Ideal, Translog, and Rotterdam. Our empirical application uses the Rotterdam model to test a few separable structures within a complete U.S. demand system emphasizing food commodities. Results, based on size-corrected likelihood ratio tests, provide support for commonly used separability assumptions about food and meat demand.

Measuring the Difference (X — Y) of Simulated Distributions: A Convolutions Approach

Abstract: Resampling or simulation techniques are now frequently used in applied economic analyses. However, significance tests for differences between empirical distributions have either invoked normality assumptions or have used nonoverlapping confidence interval criteria. We demonstrate that such methods generally will not be appropriate, and we present an empirical test, based on the method of convolutions, for assessing the statistical significance between approximate empirical distributions created by resampling techniques. The proposed convolutions approach is illustrated in a case study involving empirical distributions from dichotomous choice contingent valuation data.

Land Allocation in HYV Adoption Models: An Investigation of Alternative Explanations

Abstract: Microeconomic theory provides four competing explanations for partial land allocation to new and traditional seed varieties in HYV adoption decisions: input fixity, portfolio selection, safety-first behavior, and learning. Testing a general model that contains each as a special case suggests that they are jointly most likely to explain land allocation in the HYV adoption decisions of Malawian smallholders. Yet when each explanation is tested to the exclusion of the others (as is usually the case in the literature), competing hypotheses are individually significant. Results suggest that employing approaches based on single explanations may lead to inappropriately narrow conclusions.

Assessing the Importance of Oligopsony Power in Agricultural Markets

Abstract: Oligopoly, competition among few sellers, is the cornerstone of industrial organization (IO). Conversely, its sister concept, oligopsony, competition among few buyers, is scarcely mentioned. For example, oligopsony is not discussed in the entire two volume Handbook of Industrial Organization, and monopsony is mentioned only in the context of incentives to integrate vertically. Two reasons apparently account for IO economists' lack of interest in buyer market power: (i) they don't think it's very important, and (ii) they don't believe it presents any unique modeling issues relative to seller market power. Scherer and Ross illustrate this first viewpoint, arguing that "average concentration on the buyers' side in manufacturing is undoubtedly lower than seller concentration" (p. 519). Tirole, in his masterful treatise on IO theory, illustrates the second, dispatching monopsony power in one sentence: "Naturally the conclusions [regarding monopoly power] would also hold as well for monopsony power..." (p. 65). We argue that this dismissive treatment of buyer market power is not reasonable for economists interested in agriculture and agricultural markets. The Scherer and Ross viewpoint may apply when considering generic inputs such as labor, capital, and energy. Competition for these inputs is apt to exceed competition for the outputs they produce because firms cross product market boundaries to compete for these inputs, and there is essentially no "branding" among input buyers to diminish price competition among them. Moreover, these inputs are typically mobile, hence, in elastic supply to individual buyers, limiting the exercise of oligopsony power even in geographic settings where relatively few buyers prevail. This view of input markets does not apply, however, to first-handler markets for the raw agricultural commodities that are inputs into the processed or fresh-packed food products.' We identify the following distinctive structural characteristics of these markets:

Futures Hedging Under Price, Basis, and Production Risk

Abstract: We consider the hedging problem of a firm that has three sources of risk: price, basis, and yield uncertainty. An exact solution for the optimal futures hedge is derived under the assumption that the three random variables are jointly normally distributed and that utility is of the CARA type. Unlike the mean-variance approximation applied in previous research, we show that the optimal hedge does depend on risk attitudes, even when the agent perceives the futures price as being unbiased. The theoretical results are applied empirically to the problem of hedging soybean production in Iowa. The exact solution, relying on CARA and normality, is compared with numerical solutions under lognormal distributions and CRRA utility.

Pesticides and Philippine Rice Farmer Health: A Medical and Economic Analysis

Abstract: based on speculative and anecdotal paradigms. This paper reports on a unique study in which economists and a medical doctor teamed up to assess the impact of prolonged pesticide use on farmer health. The specific objectives of this study were to identify the types of health impairments that may be attributed to long-term pesticide use and to quantify the magnitude of the impairments relative to the level of pesticide use. Detailed medical examinations found

A Positive Theory of Agricultural Protection

Abstract: The present paper analyses the political economy of agricultural protection in a general equilibrium framework. Rational politicians offer protectionist policies in return for political support from their constituency. Individuals in the economy have different factor endowments. Politicians exploit these differences in establishing redistributive policies when maximizing political support. Changes in economic variables—such as the urban-rural income gap, capital intensity, the share of agriculture in total output and total employment, and the share of food in consumer expenditures—affect the political equilibrium policy. The analysis concludes that the observed correlation between economic development and agricultural protection is caused by a multiplicity of factors.

Pesticide Residue Risk and Food Safety Valuation: A Random Utility Approach

Abstract: A new approach is developed for integrating consumers' risk perceptions with stated purchase behavior when consumption decisions must be made with incomplete information. The application involves health risks from exposure to pesticide residues on fresh produce. Unlike traditional food demand analysis, the present approach treats produce choices as discrete outcomes, resulting in a random utility model. Empirical results from a pilot survey suggest a clear linkage between perceptions and behavior in response to new risk information. Consumers' stated preferences for safer produce were primarily influenced by price differences and perceived risks, not by the technical risk information provided alone. However, the linkage between behavior and valuation was less clear cut. The risk/price tradeoffs entailed by contingent discrete choices indicate high price premia for small risk reductions and little variation in price premium across alternative risk reductions.

Statistical Bias Functions and Informative Hypothetical Surveys

Abstract: In recent years there have been many attempts to use survey methods with hypothetical provision and payment mechanisms to elicit valuations for environmental goods. The usefulness of these estimates rests on the presumption that hypothetical provision' questions can "reliably" elicit the same values that would be elicited by questions that ask for an economic commitment when provision and payment actually occurs. The word "reliably" has typically been interpreted to mean "accurately," in the sense that hypothetical and actual provision scenarios elicit the same answers. An alternative and

Adams, Dale W. and Delbert A. Fitchett, eds. Informal Finance in Low-Income Countries. Boulder: Westview Press, 1992, xii + 393 pp., cloth $42.50

Abstract: Introduction, Dale W. Adams and Delbert A. Fitchert taking a fresh look at informal finance, D.W. Adams the rope and the box - group savings in The Gambia, Parker Shipton informal finance groups in Cameroon, Gertrud R. Schreider and Carlos E. Cuevas rural finance in Somalia, Virginia DeLancey informal finance in Niger - lessons for building form institutions, Douglas H. Graham informal finance in Sri Lanka, Nimal Sanderatne informal rural finance in Thailand, Tongroj Onchan informal finance in Papua New Guinea - an overview, Nimal Fernando informal finance in the Philippines footwear industry, Mario B. Lamberte collateral substituted in rural informal financial markets in the Philippines, Emmanuel F. Esquerra and Richard L. Meyer the Kou in Japan - a precursor of modern finance, Yoichi Izumida pawn-broking and small loans - cases from India and Sri Lanka, F.J.A. Bouman and R. Bastiaanssen strengths of informal financial institutions - examples from India, C.P.S. Nayar informal finance in Indonesia, F.J.A. Bouman and H.A.J. Moll evolving forms of informal finance in an Indonesian town, Otto Hospes linking formal and informal finance - an Indonesian example, Hans Dieter Seibel and Uben Parhusip the financial evolution of small businesses in Indonesia, Ross H. McLeod small-scale enterprise dynamics and the evolving role of informal finance, Carl Leidholm formal credit for informal borrowers - lessons from informal lenders, Robert P. Christen regulatory avoidance in informal financial markets, Robert C. Vogel and Robert Wieland contract lending to small farmers in the Dominican Republic, Jerry R. Ladman, et al rotating savings and credit associations in Bolivia, D.W. Adams and Marie L. Canavesi ROSCAs - state-of-the-art financial intermediation, J.D. Von Pischke what have we learned about informal finance in three decades?, U. Tun Wai where to from here in informal finance?, Dale W. Adams and P.B. Ghate.

Functional Form and the Statistical Properties of Welfare Measures

Abstract: This paper uses Monte Carlo analysis to compare the variance of consumer's surplus for several functional forms for demand. Although the semilog and linear forms fit the data well by statistical criteria, the coefficients of variation for consumer's surplus generated by these forms were substantially larger than for the double log and linear-log forms. While this paper is framed in the travel cost approach to recreational demand, there are implications for the choice of functional form whenever the measure of interest is a nonlinear transformation of the estimated parameters. In an influential article, Ziemer, Musser, and Hill note the importance of the choice of functional form for the magnitude of estimated measures of welfare change. In a study of the demand for a recreation site based on the travel cost model, they report nearly a fourfold difference between consumer's surplus based on a linear demand curve and surplus computed from a semilog demand. Their research emphasizes that "good" estimates of demand may not yield good estimates of welfare. The estimate of consumer's surplus is a

Pesticide Use and Farm Worker Health in Ecuadorian Potato Production

Abstract: Potatoes are a dietary staple in Ecuador as they have been for thousands of years. In 1992, about 50,000 hectares of potatoes were grown in Ecuador, mostly by small farmers. Almost all potato farmers in Ecuador rely on chemical fertilizers and pesticides to increase yields. Potato farmers are perceived as overusing pesticides, both in quantity and quality, with mixtures of chemicals, known locally as cocktails, being the favored form of application. As in many other countries, there is growing popular concern about the environmental and health impacts of agricultural chemical use. Residue testing on fresh vegetables in Ecuador found levels above those recommended by the FAO-WHO food safety guide, Codex Alimentarius. Human poisoning data were slowly accumulated during the 1980s after pesticide poisoning became a notifiable illness under the public health surveillance system. Focused surveys found widespread ignorance of the symptoms of pesticide poisoning and little use of personal protective equipment among farmers and farmworkers. With the widespread use of backpack sprayers (versus tractor or aerial application in developed countries), these groups are most likely to be at risk of excessive exposure. The research results presented here are from a case study to assess impacts of pesticide use in potato production. This case study follows methodological guidelines laid out by Antle and Capalbo to quantify the interaction between production technology, environmental quality, and human health. Two adjacent watersheds totaling about 150 kilometers in Montufar Canton in Carchi Province in a cool moist highland zone in northern Ecuador served as the case

What Do We Know About Groundwater Values? Preliminary Implications from a Meta Analysis of Contingent-Valuation Studies

Abstract: Groundwater is an important natural resourceproviding 35% of the public supply of potable water and 80% of the rural supply of potable water for domestic consumption and livestock watering (American Institute of Professional Geologists). The extensive use of groundwater in the United States, accompanied by varied threats to groundwater quality and a proliferation of laws and regulations being promulgated to protect groundwater resources, has motivated the U.S. Environmental Protection Agency to take a serious look at the benefits and costs of

Transaction cost economics and beyond : towards a new economics of the firm

Abstract: In recent years transaction cost economics have come to dominate the discussion of the nature and organization of firms. In Transaction Costs Economics and Beyond Michael Dietrich offers a critical exploration of transaction costs. He argues that whilst they have much to offer, they are still an inadequate basis for a general theory of the firm. Drawing on theories of organizational behaviour as well as economics, he concludes by offering a theory of the firm that allows for both hierarchical and creative decision making.

Small Enterprise Employment Growth in Rural Africa

Abstract: become increasingly recognized. Earlier empirical studies have indicated that they provide 20% to 45% of full-time employment and 30% to 50% of rural household income (Chuta and Liedholm; Haggblade, Hazell, and Brown). This is also reflected in the agricultural growth linkage literature (e.g., Haggblade and Hazell), where rural enterprise growth is typically a demand-driven spinoff of agricultural growth, as well as in the rural household studies that have

Fluid Milk Purchases: A Multivariate Tobit Analysis

Abstract: We formulate an econometric model of fluid milk expenditures, taking into account two important characteristics: expenditures may be censored at zero and may be interdependent across milk type. Censoring of fluid milk expenditures is addressed with a generalized Tobit system estimator. Interdependence of milk expenditures is examined through a likelihood function with no restrictions on elements of the Engel curve error covariance matrix. Expenditure function parameters are estimated using a March 1991 to March 1992 U.S. consumer panel.

Food Prices and Market Integration in Russia: 1992–93

Abstract: constituted genuine price liberalization, i.e., food prices that respond to supply and demand conditions. Two reasons for skepticism are, first, food marketing enterprises were not privatized or significantly restructured, and second, regulation and subsidization of food continued in sub-national jurisdictions. Nonetheless, it is possible that local monopolies and policy makers permitted market forces to operate sufficiently to achieve improvements in market and pricing efficiency. We test for such improvements by means of econometric investigation of geographical price differences.

A Private Property Rights Regime for the Commons: The Case for Groundwater

Abstract: We compare the social welfare of pumping groundwater under central (optimal) control to that obtained under a private property rights regime in which firms are granted tradeable permits to the in situ groundwater stock. When firms are risk averse, both regimes are suboptimal, and the matter of which regime yields greater welfare is an empirical one. When firms are risk neutral, central control dominates the private property rights regime. Still, a stochastic dynamic programming model of Madera County, California, demonstrates that even in this case, the private property rights regime is a promising alternative to central control.

Simple Econometrics of Pesticide Productivity

Abstract: This paper develops a multioutput generalization of the Lichtenberg-Zilberman damage-control technology. The dual representation of the technology is shown to be conditionally additive in the price of abatement activities and other prices. An econometric procedure for estimating the dual technology is developed and applied to an aggregate U.S. agricultural data set. The conditionally additive nature of the model allows estimation of pest damage from the dual technology. Our estimates of aggregate U.S. pest damage are much lower than previous estimates.

Economic and Environmental Impacts of Limiting Nitrogen Use to Protect Water Quality: A Stochastic Regional Analysis

Abstract: Potential economic and environmental effects of broad versus targeted nitrogen use policies are evaluated in five Central High Plains subregions. Results indicate that per-acre restrictions are more effective than total nitrogen restrictions in reducing expected nitrogen losses in runoff and percolation, and reducing percolation losses at all probability levels. Because of the distribution of soils within subregions, targeting nitrogen reductions to more permeable soils may not produce the anticipated reductions in percolation. It may be more effective to target nitrogen restrictions on production systems than on soil types. Reductions in producer income are less for targeted than for broad policies.

Land Price Volatility in a Geographically Dispersed Market

Abstract: Historical evidence and theory lead to a hypothesis that land price variation increases with distance to market. This hypothesis is tested with county data from five Cornbelt states during the period 1969 to 1987, when price changes were unusually large. Our data support the hypothesis. In the 70s, prices increased more in the Western Cornbelt than in the Eastern Cornbelt; in the 80s, the Western Cornbelt experienced the more precipitous price declines. Our hypothesis explains why Great Plains farmers have experienced greater financial problems during times of stress than have many other farmers.