Showing papers in "American Journal of Agricultural Economics in 2009"

The Impact of Agricultural Extension and Roads on Poverty and Consumption Growth in Fifteen Ethiopian Villages

Abstract: This article investigates whether public investments that led to improvements in road quality and increased access to agricultural extension services led to faster consumption growth and lower rates of poverty in rural Ethiopia. Estimating an Instrumental Variables model using Generalized Methods of Moments and controlling for household fixed effects, we find evidence of positive impacts with meaningful magnitudes. Receiving at least one extension visit reduces headcount poverty by 9.8 percentage points and increases consumption growth by 7.1 percentage points. Access to all-weather roads reduces poverty by 6.9 percentage points and increases consumption growth by 16.3 percentage points. These results are robust to changes in model specification and estimation methods

On Crop Biodiversity, Risk Exposure, and Food Security in the Highlands of Ethiopia

Abstract: This paper investigates the effects of crop genetic diversity on farm productivity and production risk in the highlands of Ethiopia. Using a moment-based approach, the analysis uses a stochastic production function capturing mean, variance, and skewness effects. Welfare implications of diversity are evaluated using a certainty equivalent, measured as expected income minus a risk premium (reflecting the cost of risk). We find that the effect of diversity on skewness dominates its effect on variance, meaning that diversity reduces the cost of risk. The analysis also shows that the beneficial effects of diversity

Poverty, Risk Aversion, and Path Dependence in Low-Income Countries: Experimental Evidence from Ethiopia

Abstract: In most low-income countries, rural households depend on mixed rain-fed agriculture/livestock production, which is very risky. Due to numerous market failures, there are few ways to shift risks to third parties. The literature has focused on what determines the responses of households in such environments. Of special concern are path dependencies in which households experiencing failure are prone to further failure and potential poverty traps. This paper estimates levels and determinants of risk aversion in the highlands of Ethiopia. We find high risk aversion and evidence that constraints have important impacts on risk-averting behavior with perhaps significant implications for long-term poverty. The results also suggest the possibility of path dependence and offer insights into links between risk aversion and poverty traps. Copyright 2009, Oxford University Press.

The Indirect Land Use Impacts of United States Biofuel Policies: The Importance of Acreage, Yield, and Bilateral Trade Responses

Abstract: Recent work has highlighted agricultural land conversion as a significant debit in the greenhouse gas accounting of ethanol as an alternative fuel. This work has at the same time sparked considerable debate on the role of crop yield growth as a means of avoiding rapid land conversion. We examine the agricultural land use impacts of mandate driven ethanol demand increases in the United States in a formal economic equilibrium framework which allows us to examine the importance of yield price relationships. We find that the standard assumption of trend yield growth is likely restrictive for analysis of equilibrium response to significant demand increases for fuel feedstocks. Furthermore, we identify both the acreage response and bilateral trade specification of a multi-country model as important sources of variability (in terms of parametric uncertainty) in predicting global land use change from the biofuels boom.

The Economics of a Blend Mandate for Biofuels

Abstract: A biofuel blend mandate may increase or decrease consumer fuel prices with endogenous oil prices, depending on relative supply elasticities. Biofuel tax credits always reduce fuel prices. Tax credits result in lower fuel prices than under a mandate for the same level of biofuel production. If tax credits are implemented alongside mandates, then tax credits subsidize fuel consumption instead of biofuels. This contradicts energy policy goals by increasing oil dependency, CO 2 emissions, and traffic congestion, while providing little benefit to either corn or ethanol producers. These social costs will be substantial with tax credits costing taxpayers $28.7 billion annually by 2022. Copyright 2008, Oxford University Press.

How Closely Do Hypothetical Surveys and Laboratory Experiments Predict Field Behavior

Abstract: We compare the ability of three preference elicitation methods (hypothetical choices, nonhypothetical choices, and nonhypothetical rankings) and three discrete-choice econometric models (the multinomial logit [MNL], the independent availability logit [IAL], and the random parameter logit [RPL]) to predict actual retail shopping behavior in three different product categories (ground beef, wheat flour, and dishwashing liquid). Overall, we find a high level of external validity. Our specific results suggest that the nonhypothetical elicitation approaches, especially the nonhypothetical ranking method, outperformed the hypothetical choice experiment in predicting retail sales. We also find that the RPL can have superior predictive performance, but that the MNL predicts equally well in some circumstances. experiment.

State-conditional Fertilizer Yield Response on Western Kenyan Farms

Abstract: 15 16 17 We acknowledge with gratitude support from the Rockefeller Foundation, the United States Agency for 18 International Development (USAID)/Leadership Enhancement in Agriculture Program (LEAP), and the 19 Coupled Natural and Human Systems Program of the Biocomplexity Initiative of the National Science 20 Foundation, through grant BCS - 0215890. The World Agroforestry Center (ICRAF) graciously hosted 21 the lead author for part of the research and provided soil test results. We are also grateful to James

Effects of Label Information on Consumer Willingness-to-Pay for Food Attributes

Abstract: Choice experiments (CEs) are often used to elicit consumer willingness-to-pay (WTP) for food attributes. A concern about these approaches is that food attributes provided to respondents are assumed independent of attributes not provided. We use surveys containing a series of CEs to investigate effects of adding beef steak attributes. WTP for important attributes in the CEs decrease when the number of attributes increases from three to four, while WTP increases when the number of attributes increases from four to five. Changes in WTP for attributes depend on their relationships with newly added attributes and the number of attributes presented. Copyright 2007, Oxford University Press.

Impacts of Low-Cost Land Certification on Investment and Productivity

Abstract: New land reforms are again high on the policy agenda and low-cost, propoor reforms are being tested in poor countries. This article assesses the investment and productivity impacts of the recent low-cost land certification implemented in the Tigray region of Ethiopia, using a unique household and farm-plot-level panel data set, with data from before and up to eight years after the reform. Alternative econometric methods were used to test and control for endogeneity of certification and for unobserved household heterogeneity. Significant positive impacts were found, including effects on the maintenance of soil conservation structures, investment in trees, and land productivity. Copyright 2007, Oxford University Press.

Standards as Barriers Versus Standards as Catalysts: Assessing the Impact of HACCP Implementation on U.S. Seafood Imports

Abstract: The United States mandated a Hazard Analysis Critical Control Points (HACCP) food safety standard for seafood in 1997. Panel model results for the period 1990 to 2004 suggest that HACCP introduction had a negative and significant impact on overall seafood imports from the top 33 suppliers. While the effect for developed countries was positive, the negative HACCP effect for developing countries supports the view of “standards-as-barriers” versus ”standards-as-catalysts.” When the effect is analyzed at an individual country level a different perspective emerges. Regardless of development status, leading seafood exporters generally gained sales volume with the U.S., while most other smaller trading partners faced losses or stagnant sales.

Internal and External Validity in Economics Research: Tradeoffs between Experiments, Field Experiments, Natural Experiments, and Field Data

Abstract: In the realm of empirical research, investigators are first and foremost concerned with the validity of their results, but validity is a multi-dimensional ideal. In this article we discuss two key dimensions of validity - internal and external validity - and underscore the natural tension that arises in choosing a research approach to maximize both types of validity. We propose that the most common approaches to empirical research - the use of naturally-occurring field/market data and the use of laboratory experiments - fall on the ends of a spectrum of research approaches, and that the interior of this spectrum includes intermediary approaches such as field experiments and natural experiments. Furthermore, we argue that choosing between lab experiments and field data usually requires a tradeoff between the pursuit of internal and external validity. Movements toward the interior of the spectrum can often ease the tension between internal and external validity but are also accompanied by other important limitations, such as less control over subject matter or topic areas and a reduced ability for others to replicate research. Finally, we highlight recent attempts to modify and mix research approaches in a way that eases the natural conflict between internal and external validity and discuss if employing multiple methods leads to economies of scope in research costs.

Conservation Payments, Liquidity Constraints, and Off-Farm Labor: Impact of the Grain-for-Green Program on Rural Households in China

Abstract: This study evaluates the labor response of rural households participating in the Grain for Green program in China, the largest payments for ecosystem services program in the developing world. Using a panel data set that we designed and implemented, we find that the participating households are increasingly shifting their labor endowment from on-farm work to the off-farm labor market. However, the effects vary depending on the initial level of human and physical capital. The results support the view that one reason why the participants are more likely to find off-farm employment is because the program is relaxing households’ liquidity constraints.

Weak Disposability in Nonparametric Production Analysis: Reply to Färe and Grosskopf

Abstract: Fare and Grosskopf (this issue) claim that a single abatement factor suffices for modeling weak disposability in nonparametric production models, and that the Kuosmanen (2005) technology that uses multiple abatement factors is larger than necessary. This article demonstrates by a numerical example that a single abatement factor does not suffice to capture all feasible production plans, and that its use leads to the violation of convexity, one of the maintained assumptions of the model. We also prove that the Kuosmanen technology is the correct minimum extrapolation technology under the stated axioms.

How Human Psychology Drives the Economy and Why It Matters

Abstract: How Human Psychology Drives the Economy and Why It Matters By George A. Akerlof The recent global financial crisis has made it painfully clear that powerful psychological forces are imperiling the wealth of nations today. From blind faith in every-rising housing prices to plummeting confidence in capital markets, “animal spirits” are driving financial events worldwide. Robert Shiller and I (Akerlof and Shiller 2009) challenge the economic wisdom that got us into this mess, e.g., rational expectations macroeconomics (Sargent and Wallace 1976, Lucas 1976) and an explosion in new unregulated financial instruments and near banks (Aversa 2008), and put forward a bold new vision and policies that will transform economics and restore world prosperity. We assert the necessity of an active government role in economic policymaking by recovering the idea of animal spirits, a term John Maynard Keynes used to describe e the gloom and despondence that led to the Great Depression (1929-33) and changing psychology that accompanied recovery. Like Keynes, we know that managing these animal spirits requires the steady hand of government—simply allowing markets to work will not do it. In rebuilding the case for a more robust, behaviorally informed Keynesianism, we detail the most pervasive effects of animal spirits in contemporary economic life—such as confidence, fear, bad faith, corruption, a concern for fairness, and the stories we tell ourselves about our economic

The Welfare Economics of a Biofuel Tax Credit and the Interaction Effects with Price Contingent Farm Subsidies

Abstract: A framework is developed to analyze the effects of a biofuel consumer tax exemption and the interaction effects with a price contingent farm subsidy. Ethanol prices rise above the gasoline price by the amount of the tax credit. Corn farmers gain directly while gasoline consumers only gain from any reduction in world oil prices due to the extra ethanol production. Domestic oil producers lose. Historically, the intercept of the ethanol supply curve is above the gasoline price. Hence, part of the tax credit is redundant and represents “rectangular” deadweight costs that dwarf triangular deadweight cost measures of traditional farm subsidies. Copyright 2007, Oxford University Press.

What Is It About Organic Milk? An Experimental Analysis

Abstract: Auction experiments were used to examine demand relationships and willingness to pay (WTP) for organic, rBST‐free, no antibiotics used, and conventional milk. Elasticities showed strong substitute and complement relationships between organic, rBST‐free, and no antibiotics varieties. The sum of the latter two's premiums were not significantly different than the organic premium, suggesting diminishing marginal utility for added attributes. Results from a two‐stage heteroskedastic tobit model demonstrated that WTP premiums for the varieties differ significantly by demographics and beliefs regarding the conventional version. These suggest market segments for rBST‐free and no antibiotics versions could succeed alongside organic, benefiting consumers and producers.

Valuing Water Quality as a Function of Water Quality Measures

Abstract: Employing a unique and rich data set of water quality attributes in conjunction with detailed household characteristics and trip information, we develop a mixed logit model of recreational lake usage and undertake thorough model specification and fitting procedures to identify the best set of explanatory variables, and their functional form for the estimated model. Our empirical analysis shows that individuals are responsive to the full set of water quality measures used by biologists to identify the impaired status of lakes. Thus, changes in these quality measures are not simply a scientific exercise, but they also translate into changes in the recreational usage patterns and well-being of individual households. Willingness-to-pay (WTP) estimates are reported based on improvements in these physical measures.

Scale Economies and Inefficiency of U.S. Dairy Farms

Abstract: This study employs data drawn from the 2000 Agricultural Resource Management Survey, a U.S. Department of Agriculture-sponsored farmers' survey. The article estimates returns to scale relationships across dairy farms of different sizes and across different regions, incorporating variables hypothesized to influence farm performance. Results point to significant scale economies in U.S. dairy farms and underscore the importance of taking account of inefficiency when estimating scale economies. Contrary to previous research, the preferred cost function specification does not show a region of decreasing returns to scale. This finding helps explain why the average size of dairy farms has been increasing.

A Comment on Weak Disposability in Nonparametric Production Analysis

Abstract: In his 2005 paper in this journal, Kuosmanen argues that Shephard's specification of weak disposability in activity analysis (DEA) models is not correct. We show that Shephard's specification does satisfy weak disposability and is the “smallest” technology to do so.

The Demand for Food Quality in Rural China

Abstract: Many studies of food demand do not use actual prices but unit values, obtained by dividing expenditures by the quantity consumed. This can bias empirical analyses because unit values are not exogenous market prices; they reflect household food quality choices within each food category. This article develops a framework for assessing the resulting bias in income and price elasticities of demand and applies the framework to data for rural China. Empirical results indicate that households in rural China tend to consume higher-quality food as income increases, with a greater sensitivity to income for basic foods than for luxury foods. Copyright 2009, Oxford University Press.

Credit Constraints: Their Existence, Determinants, and Implications for U.S. Farm and Nonfarm Sole Proprietorships

Abstract: The objective of this study is to determine the effect of credit constraints on production for farm and nonfarm sole proprietorships. A propensity score-matching estimator is employed to provide unbiased estimates of the production impacts of being denied credit. The empirical results demonstrate that the value of production is significantly lower for credit-constrained sole proprietorships. If this drop in the value of production is aggregated to a national level, it constitutes only 3% and 13% of total value of production for farm and nonfarm sole proprietorships, respectively. Copyright 2009, Oxford University Press.

Consumer and Market Responses to Mad Cow Disease

Abstract: We examine how consumers and financial markets in the United States react to two health warnings about mad cow disease: the first discovery of an infected cow in December 2003 and an Oprah Winfrey show on the potentially harmful effects that aired seven years earlier. Using a unique product-level scanner data set of a national grocery chain, we find a pronounced and significant reduction in beef sales following the first discovered infection, which dissipates slowly over the next three months. Cattle futures show a comparable pattern of abnormal price drops to the scanner data. Contracts with longer maturity show smaller drops, suggesting that the market anticipated the impact to be transitory. Cattle futures show abnormal price drops after the Oprah Winfrey show that are more than 50% of the drop following the 2003 discovery of an infected cow.

Credit Market Imperfections and the Distribution of Policy Rents

Abstract: This article shows that credit market imperfections have important implications for the distribution of policy rents. In a model with land as fixed factor and credit market imperfections, when an area payment is given, land rents go up by more than the subsidy. On aggregate farms may lose from the subsidy. The results depend on the extent to which subsidies have direct and indirect effects on the credit constraints, on whether farms rent or own land, and on farm heterogeneity.

The Commodity Terms of Trade, Unit Roots, and Nonlinear Alternatives: A Smooth Transition Approach

Abstract: Market price dynamics for North American oriented strand board markets are examined. Specifically, the role of transactions costs are examined vis–`a–vis the law of one price. Weekly data for the January 3rd, 1995 through April 14th, 2006 period are used in the analysis. Nonlinearities induced by unobservable transactions costs are modeled by estimating smooth transition autoregressions (STARs). Results indicate that nonlinearity is an important feature of these markets and that the parity relationships implied by economic theory are generally supported by the STAR models. Implications for the efficiency of spatial market linkages are examined by estimating generalized impulse response functions.

Export Sectors and Rural Development

Abstract: The export base hypothesis is that a region’s growth is led by export demand, given perfectly elastic factor supplies. It is a rationale for “sector-based” rural development policies, and it is formalized by input-output models. But it is contested by modern trade, migration, and growth theories, and there is little research about its empirical relevance. We investigate the hypothesis for contemporary U.S. rural development by estimating the influence of export sector employment on subsequent rural development outcomes. The results reject the hypothesis that emphasizing traditional export employment results in rural growth, reject the assumption of perfectly elastic factor supply, and support alternative explanations. Copyright 2009, Oxford University Press.

Weather Risk, Wages in Kind, and the Off-Farm Labor Supply of Agricultural Households in a Developing Country

Abstract: This article investigates the effects of weather risk on the off-farm labor supply of agricultural households in a developing country, distinguishing different types of off-farm labor markets. A multivariate two-limit tobit model is applied to data from India. The regression results show that the share of the off-farm labor supply increases with weather risk, the increase is much larger in the case of nonagricultural work than in the case of agricultural wage work, and the increase is much larger in the case of agricultural wages paid in kind than in the cash wage case, suggesting farmers' considerations of food security. Copyright 2007, Oxford University Press.

Measuring Excess Capital Capacity in Agricultural Production

Abstract: We introduce the concept "excess capital capacity" and employ a stochastic input requirement frontier to measure excess capital capacity in agricultural production. We also propose a two-step estimation method that allows endogenous regressors in stochastic frontier models. The first step uses generalized method of moments to get consistent estimates of the frontier parameters in the presence of endogenous regressors. The second step uses maximum likelihood to measure excess capital capacity and evaluate the factors that influence it. The empirical application to Dutch cash crop farms found varying degrees of excess capital capacity. The policy implications of excess capital capacity are discussed

Comparing Open-Ended Choice Experiments and Experimental Auctions: An Application to Golden Rice

Abstract: We use two experimental valuation methods to estimate consumer demand for genetically modified golden rice. The first is an open-ended choice experiment (OECE) where participants name the quantities of golden rice and conventional rice demanded at each of several price combinations, one of which will be randomly chosen as binding. This allows us to estimate market demand by aggregating demand across participants. This estimate of market demand also allows us to estimate own-price elasticity and consumer surplus for golden rice. Comparing willingness-to-pay (WTP) estimates from the OECE with those from a uniform-price auction, we find that OECE WTP estimates exhibit less affiliation across rounds, and the effects of positive and negative information under the OECE are more consistent with prior expectations and existing studies. We also find that, while auction WTP estimates more than double across five rounds, OECE WTP estimates are stable across rounds and are always roughly equal to those from the final auction round.

Does Production Labeling Stigmatize Conventional Milk

Abstract: Production labeling is a common approach for differentiating otherwise similar products in the marketplace. While these labels may convey positive messages to consumers about the new product, they may simultaneously stigmatize the conventionally produced product by highlighting perceived problems. The net economic result for producers can be negative since consumers may decrease their willingness to pay for the conventional product that dominates the market, while the new product has a relatively small market share. This experimental research identifies this stigma effect in the case of milk, where the introduction of rBST-free and organic milk reduces consumers' willingness to purchase conventional milk. Copyright 2009, Oxford University Press.