Showing papers in "American Journal of Agricultural Economics in 2015"

Rising Food Prices, Food Price Volatility, and Social Unrest

Abstract: Can food prices cause social unrest? Throughout history, riots have frequently broken out, ostensibly as a consequence of high food prices. Using monthly data at the international level, this article studies the impact of food prices – food price levels as well as food price volatility – on social unrest. Because food prices and social unrest are jointly determined, data on natural disasters are used to identify the causal relationship flowing from food price levels to social unrest. Results indicate that for the period 1990–2011, food price increases have led to increases in social unrest, whereas food price volatility has not been associated with increases in social unrest. These results are robust to alternative definitions of social unrest, to using real or nominal prices, to using commodity-specific price indices instead of aggregated price indices, to alternative definitions of the instrumental variable, to alternative definitions of volatility, and to controlling for non-food-related social unrest.

Substitutes or Complements? Consumer Preference for Local and Organic Food Attributes

Abstract: This research examines consumer preference and compares their willingness‐to‐pay for a host of value‐added attributes of processed blackberry jam, and focuses on various organic and local production location designations. Instead of being treated as a binary attribute, three levels of USDA organic are considered: 100% organic, at least 95% organic, and made with organic ingredients (at least 70% organic). For local production, three levels are also included in the analysis: cross‐state region (the Ohio Valley), state boundary (state‐proud logos), as well as sub‐state regions. Stated‐preference data collected from a choice experiment in a mail survey in Kentucky and Ohio are used. Results from the study confirm positive willingness‐to‐pay for both organic and local attributes. However, consumers were willing to pay comparatively more for jam produced locally in regions smaller than the border of a state compared to organic jam. Furthermore, substitution and complementary effects between food attributes were investigated. The study found strong substitution effects between organic and local production claims, an issue that has thus far received minimal treatment in the existing literature on organic and local food willingness‐to‐pay studies. The results indicate a large degree of overlapping values in the willingness‐to‐pay for these two food attributes. In addition, the “small farm” attribute considered in the study also appears to be a substitute for organic and local attributes, which confirms the previous belief that one of the many reasons consumers purchase organic or local products is to support small or family‐owned farms.

On the Economics of Labels: How Their Introduction Affects the Functioning of Markets and the Welfare of All Participants

Abstract: Are labels good or bad for consumers and firms? The answer may seem straightforward since labels improve information, yet economic theory reveals situations where their introduction reduces the welfare of at least some market participants. This essay reviews the theoretical literature on labels in order to identify and explain the main reasons that may cause labeling to produce undesirable side-effects. In contrast to earlier reviews that either concentrate on narrow topics or treat the subject in a more or less informal way, we bring together the main results from all the relevant topics by presenting and discussing the assumptions and model-building techniques that underpin them. The advantage of this approach is that it identifies the origin of the differences between results, thus allowing the synthesis of results that sometimes appear even to be contradictory. We focus on “quality labels” and examine the impact of labeling on market structure, the side-effects of costly certification, issues related to the label's trustworthiness, the rationale for mandatory vs. voluntary labeling, the level at which the label's standard is set according to the agency that selects it, the political economy of labels, that is, pro- or anti-label lobbying, lobbying to affect the label's standard, and lobbying in favor or against the label's mandatory imposition. These topics cover a wide range of applications, including Genetically Modified Organism (GMOs), organic produce, geographic indicators, controlled origin, eco-labels, etc. We conclude by identifying topics that require further research.

Farmers' Adaptation to Extreme Weather Events through Farm Management and Its Impacts on the Mean and Risk of Rice Yield in China

Abstract: We explore how rice farmers adjust their farm management practices in response to extreme weather events and determine whether their adjustments affect the mean, risk, and downside risk of rice yield. Based on a survey of 1,653 rice farmers in China, our econometric analyses show that the severity of drought and flood in the study areas significantly increases the risk and downside risk of rice yield. The applied farm management measures respond to severe drought and flood and can be considered as adaptation to climate change, an issue often ignored in previous studies. We model adaptation and its impact on rice yield for adapters and non-adapters. Utilizing a moment-based approach, we show that adaptation through farm management measures significantly increases rice yield and reduces the risk and downside risk of rice yield. Several policies, including scaling up the cost-effective farm management adaptation and providing public services related to natural disasters, are recommended to improve adaptive capacity of farmers, particular the poor, in response to extreme events.

Wine Prices and Quality Ratings: A Meta-regression Analysis

Abstract: This article examines the empirical support for the hypothesized hedonic theoretical relation between the price of wine and its quality. The examination considers over 180 hedonic wine price models developed over 20 years, covering many countries. The research identifies that the relation between the price of wine and its sensory quality rating is a moderate partial correlation of +0.30. This correlation exists despite the lack of information held by consumers about a wine’s quality and the inconsistency of expert tasters when evaluating wines. The results identify a moderate price-quality correlation, which suggests the existence of strategic buying opportunities for better informed consumers. Strategic price setting possibilities may also exist for wine producers given the incomplete quality information held by consumers. The results from the meta-regression analysis point to the absence of any publication bias, and attribute the observed asymmetry in estimates to study heterogeneity. The analysis suggests the observed heterogeneity is explained by the importance of a wine’s reputation, the use of the 100-point quality rating scale, the analysis of a single wine variety/style, and the employed functional form. The most important implication from the analysis is the relative importance of a wine’s reputation over its sensory quality, inferring that producers need to sustain the sensory quality of a wine over time to extract appropriate returns. The reputation of the wine producer is found not to influence the strength of the price quality relationship. This finding does not contradict the importance of wine producer reputation in directly influencing prices.

Expenditure Response to Increases in In-Kind Transfers: Evidence from the Supplemental Nutrition Assistance Program

Abstract: Recent studies on food stamp participant households’ marginal propensity to spend out of food stamps versus income have had contradictory results: experimental studies have found household behavior aligns with standard economic theory where households’ marginal propensity to spend on food out of food stamps is equivalent to cash income; observational studies nd that households have a larger marginal propensity to spend out of food stamps than cash income. In this study, we re{examine this question by estimating how an unprecedentedly large increase in food stamp benets due to the implementation of the American Recovery and Reinvestment Act aects food{at{home expenditure. We nd that the policy change caused households to increase food{at{home expenditure as well as increase households’ share of total expenditure allocated toward food{at{home expenditure. We compare these results to a time period without a meaningful food stamp policy change and nd our results are unique to the ARRA implementation time period.

Using Cumulative Prospect Theory to Explain Anomalous Crop Insurance Coverage Choice

Abstract: Farmers’ decisions about how much crop insurance to buy are not generally consistent with expected utility maximization. Taking into account both marginal risk benefits and marginal subsidy effects suggests that most farmers have chosen lower coverage levels than would be predicted by standard models. By modeling financial outcomes as gains and losses, cumulative prospect theory offers an alternative framework to perhaps better understand farmers’ purchase decisions. The role of the reference point that defines outcomes as either a gain or a loss, the degree of loss aversion, curvature of the value function, and the probability weighting function in determining optimal crop insurance coverage levels are explored for three representative farms calibrated to 2009 conditions. Loss aversion and how crop insurance is framed through choice of the reference point are shown to be the key factors that determine whether predictions from prospect theory are consistent with observed crop insurance coverage choices. When crop insurance is framed as a tool to manage farm risk then optimal choices under prospect theory are not consistent with observed choices. If crop insurance is framed as a stand‐alone investment where a loss is felt if the indemnity received is less than the premium paid, then prospect theory can generate optimal coverage level choices that are largely consistent with observed decisions. This result is shown to be robust to changes in parameterizations as long as loss aversion is maintained and if curvature of the value function is accompanied by decision weights that overweight low probability outcomes.

Following Up on Smallholder Farmers and Supermarkets in Kenya

Abstract: In many developing countries, supermarkets are expanding rapidly. This affects farmers’ marketing options. Previous studies have analyzed welfare effects of smallholder participation in supermarket channels from a static perspective, using cross‐section data. We develop a conceptual framework and use panel data to better understand participation and impact dynamics. The analysis focuses on vegetable producers in Kenya. Participation in supermarket channels is associated with income gains. However, many farmers have dropped out of the supermarket channel due to various constraints. The initial income gains cannot be sustained when returning to the traditional market. Organizational support may be needed to avoid widening income disparities.

Dealing with Uncertainty in Agent-Based Simulation: Farm-Level Modeling of Adaptation to Climate Change in Southwest Germany

Abstract: Climate change will most likely confront agricultural producers with natural, economic, and political conditions that have not previously been observed and are largely uncertain. As a consequence, extrapolation from past data reaches its limits, and a process-based analysis of farmer adaptation is required. Simulation of changes in crop yields using crop growth models is a first step in that direction. However, changes in crop yields are only one pathway through which climate change affects agricultural production. A meaningful process-based analysis of farmer adaptation requires a whole-farm analysis at the farm level. We use a highly disaggregated mathematical programming model to analyze farm-level climate change adaptation for a mountainous area in southwest Germany. Regional-level results are obtained by simulating each full-time farm holding in the study area. We address parameter uncertainty and model underdetermination using a cautious calibration approach and a comprehensive uncertainty analysis. We deal with the resulting computational burden using efficient experimental designs and high-performance computing. We show that in our study area, shifted crop management time slots can have potentially significant effects on agricultural supply, incomes, and various policy objectives promoted under German and European environmental policy schemes. The simulated effects are robust against model uncertainty and underline the importance of a comprehensive assessment of climate change impacts beyond merely looking at crop yield changes. Our simulations demonstrate how farm-level models can contribute to a process-based analysis of climate change adaptation if they are embedded into a systematic framework for treating inherent model uncertainty.

A Triple-Hurdle Model of Production and Market Participation in Kenya's Dairy Market

Abstract: Existing analyses of market participation are based on a “double‐hurdle” modeling approach. Such models are appropriate only when all members of the population of interest actually produce the good. In some contexts, however (e.g., smallholder farmers), many members of the population do not produce particular goods that they could produce and that their neighbors do produce. Policies influencing market participation among producers may thus also induce additional farmers to become producers. Previous double‐hurdle approaches do not allow explicitly for this possibility. To address these limitations, this article presents a “triple‐hurdle” approach with an initial stage that includes nonproducers. The model is used to identify the factors associated with Kenyan smallholder farmers choosing to participate in dairy production, and the role that these producers choose to play (or not) in the marketplace. In the midst of debates underway over the privatization of the parastatal Kenya Creameries Company, new knowledge about smallholder participation in dairy could be an important contribution. Results suggest the importance of rural electrification, training, and improved grazing practices. We find that expected net sales are significantly higher when farmers have access to informal private markets. We also describe a version of the ordered tobit model that includes nonproducers and is nested in our triple‐hurdle model. A likelihood ratio test shows the latter to be a significantly better fit to our data. We discuss how insights gained from this study differ from the insights that would come from a double‐hurdle ordered tobit that also includes nonproducers.

Farmer Bargaining Power and Market Information Services

Abstract: In many Sub‐Saharan African countries, farmers typically have a choice between selling their products to traders who travel between villages and markets and transporting their products to the nearest market themselves. Because of communities’ remoteness and poor communications with marketplaces, farmers’ uncertainty about market prices is usually high. Traders may take advantage of farmers’ ignorance of the market price and extract a rent from them by offering very low prices for their products. In this article, we model bargaining interactions between farmers and traders meeting at the farmgate and we study how price information affects the bargain and the balance of power. We show the conditions for Market Information Services (MIS) to be profitable for farmers and examine efficiency issues associated with asymmetric information. Finally, we test the model's prediction that information results in positive individual gain for farmers using original survey data collected in the Northern region of Ghana. Specifically, we estimate the causal effect of a mobile‐based MIS program on farmers’ marketing performances and find that farmers who have benefited from the MIS program received significantly higher prices for maize and groundnuts: about 10% more for maize and 7% more for groundnuts than what they would have received had they not participated in the MIS program. These results suggest that the theoretical conditions for successful farmer use of MIS may be met in the field.

The Effects of Experience on Preferences: Theory and Empirics for Environmental Public Goods

Abstract: This article develops a choice model for environmental public goods, which allows for consumers to learn about their preferences through consumption experiences. We develop a theoretical model of Bayesian updating, perform comparative statics over the model, and show how the theoretical model can be consistently incorporated into a reduced form econometric model. Our main findings are that in a random utility model (RUM) discrete choice model, a subject's scale should increase and the variability of scale should decrease with experience if subjects are Bayesians. We then estimate the model using field data regarding preferences for one particular public good, water quality. We find strong evidence that additional experience increases scale, thereby making consumer preferences more predictable from the econometrician's perspective. We find supportive but less convincing evidence that experience decreases the variability of scale across subjects.

Copula-Based Models of Systemic Risk in U.S. Agriculture: Implications for Crop Insurance and Reinsurance Contracts

Abstract: The federal crop insurance program has been a major fixture of U.S. agricultural policy since the 1930s, and continues to grow in size and importance. Indeed, it now represents the most prominent farm policy instrument, accounting for more government spending than any other farm commodity program. The 2014 Farm Bill further expanded the crop insurance program and introduced a number of new county‐level revenue insurance plans. In 2013, over $123 billion in crop value was insured under the program. Crop revenue insurance, first introduced in the 1990s, now accounts for nearly 70% of the total liability in the program. The available plans cover losses that result from a revenue shortfall that can be triggered by multiple, dependent sources of risk—either low prices, low yields, or a combination of both. The actuarial practices currently applied when rating these plans essentially involve the application of a Gaussian copula model to the pricing of dependent risks. We evaluate the suitability of this assumption by considering a number of alternative copula models. In particular, we use combinations of pair‐wise copulas of conditional distributions to model multiple sources of risk. We find that this approach is generally preferred by model‐fitting criteria in the applications considered here. We demonstrate that alternative approaches to modeling dependencies in a portfolio of risks may have significant implications for premium rates in crop insurance.

Individual and Cooperative Management of Invasive Species in Human-mediated Landscapes

Abstract: As a bioinvasion spreads across a landscape from its point of introduction, damages rise roughly with the square of the distance from the original invasion. It is thus generally beneficial, at the landscape scale, to apply eradication or containment controls early if not immediately upon discovery. However, an individual property owner only has incentives to consider the costs and benefits of control on his/her own property rather than potential landscape‐scale damages. Bioinvasions will therefore generally be under‐controlled in a landscape of independent owners operating under a laissez‐faire system. A mechanism is thus needed to induce early cooperative contributions to control costs from beneficiaries who would, without them, be invaded later. We develop a spatially‐explicit, integrated model of invasion spread and human behavior to examine how different degrees of spatial cooperation affect patterns of invasion spread and the total costs and damages imposed. We compare individual laissez‐faire, cooperative control by adjacent neighbors, and cooperative control by groups including more distant but nearby neighbors. As expected, private laissez‐faire control decisions tend to under‐control the invasion relative to socially optimal control under most circumstances. But a reasonably high fraction of first best payoffs can be achieved with only a modest geographical reach of cooperation. We also find that less extensive cooperation is needed to control invasions whose costs and damages otherwise lead to the largest externalities (circumstances with costs that are relatively low compared with damages). This suggests that even small amounts of cooperation to control bioinvasions can provide large social benefits.

The Happy Farmer: The Effect of Nonpecuniary Benefits on Behavior

Abstract: I test empirically the relationship between farmers’ perceptions of the nonpecuniary benefits from farming with a variety of field behaviors such as disinvestment, production, diversification, and off‐farm labor market participation. Results suggest that nonpecuniary benefits have an important influence on a wide range of farmer activities. While costs and returns are clearly important, I suggest that nonpecuniary benefits may make some choices more attractive than others which may be more rewarding financially.

Futures Market Failure

Abstract: In a well‐functioning futures market, the futures price at expiration equals the price of the underlying asset. This condition failed to hold in grain markets for most of 2005‐2010, calling into question the ability of these markets to perform their price discovery and risk management functions. During this period, futures contracts expired up to 35% above the cash grain price. We develop a dynamic rational expectations model of commodity storage that explains how these recent convergence failures were generated by the institutional structure of the delivery system. When delivery occurs on a grain futures contract, the firm on the short side of the market provides a delivery instrument (a warehouse receipt or shipping certificate) to the firm on the long side of the market. The firm taking delivery may hold the delivery instrument indefinitely, providing it pays a daily storage rate. The futures exchange sets the maximum allowable storage rate at a fixed value. We show that non‐convergence arises in equilibrium when the market price of physical grain storage exceeds the maximum storage rate on delivery instruments. We call the difference between the price of carrying physical grain and the maximum storage rate the wedge, and demonstrate theoretically and empirically that the magnitude of the non‐convergence equals the expected present discounted value of a function of future wedges.

Price Explosiveness, Speculation, and Grain Futures Prices

Abstract: A recently developed testing procedure is used to detect and date-stamp explosive episodes ("bubbles" in corn, soybean, and wheat futures markets during 2004-2013. We find that the markets experienced price explosiveness only approximately two percent of the time and, when bubbles do occur, they are generally short-lived and small in magnitude. The correspondence between observed price spikes and bubbles is rather low, with a large portion of the price explosiveness occurring during downward price movements. Commodity index trader positions do not significantly affect the probability of a positive bubble occurring in grain futures markets, which directly contradicts the argument (the "Masters Hypothesis" that waves of index investment distorted underlying supply-and-demand relationships and led to a series of massive bubbles in agricultural futures markets. In addition, commodity index trader positions tend to reduce negative bubble occurrence, while general speculative activity as measured by Working's T reduces the probability of a positive bubble. There is some evidence that the positions of noncommercial traders have a direct effect on positive bubble occurrence, but the effect declines when accounting for the composition of other traders in the market. Overall, speculation has little effect or negative effects on price explosiveness. Finally, positive bubbles are more likely to occur in the presence of low inventories, strong exports, a weak U.S. dollar, and booming economic growth, whereas negative bubbles are more likely to occur with large inventories, weak exports, and stagnant economic growth.

Endogeneity Corrected Stochastic Production Frontier and Technical Efficiency

Abstract: A major econometric issue in estimating production parameters and technical efficiency is the possibility that some forces influencing production are only observed by the firm and not by the econometrician. Not only can this misspecification lead to a biased inference on the output elasticity of inputs, but it also provides a faulty measure of technical efficiency. We extend the Levinsohn and Petrin (2003) approach and provide an estimation algorithm to overcome the problem of endogenous input choice in stochastic production frontier estimation by generating consistent estimates of production parameters and technical efficiency. We apply the proposed method to a plant-level panel dataset from the Colombian food manufacturing sector for the period 1982–1998. This dataset provides the value of output and prices charged for each product, expenditures, and prices paid for each material used, energy consumption in kilowatt per hour and energy prices, number of workers and payroll, and book values of capital stock. Empirical results find that the traditional stochastic production frontier tends to underestimate the output elasticity of capital and firm-level technical efficiency. The evidence in this research suggests that addressing the endogeneity issue matters in stochastic production frontier analysis.

Commodity Price Responses to Monetary Policy Surprises

Abstract: Commodity prices are important both as a source of shocks and for the propagation of shocks originating elsewhere in the economy. Many vector autoregression (VAR) studies estimate a gradual response of commodity prices to monetary policy shocks. Exploiting information in high-frequency financial market data, and using the methods of Rigobon and Sack (2004) I find that a 10 basis point surprise change in interest rates causes commodity prices to fall immediately by about 0.5%. This is about two-thirds of the estimated response of the S&P500, and about five times larger than the response in a VAR 12 months after the shock. Metals prices tend to respond more than agricultural commodities. The point estimate for oil prices is similar to other commodities, but is estimated imprecisely.

Position Bias in Best-worst Scaling Surveys: A Case Study on Trust in Institutions

Abstract: This paper investigates the effect of physical position on ‘best’ and ‘worst’ choices in the bestworst scaling technique. Although the best-worst scaling technique has been used widely in many fields, the phenomenon of consumers’ adoption of processing strategies while making choices has been largely overlooked. We examine this issue in the context of consumers’ perception of trust in institutions to provide information about a new food technology, namely nanotechnology, and its use in food processing. Our results show that around half of the consumers used position as a schematic cue when making choices. We find the position bias is particularly strong when consumers chose their most trustworthy institution compared to their least trustworthy institution. In light of our findings, we recommend researchers in the field to be aware of the possibility of position bias when designing best-worst scaling surveys. We also encourage researchers who have already collected best-worst data to investigate whether their data shows such heuristics.

The Economics of Collective Reputation: Evidence from the Wine Industry

Abstract: We use original data regarding the array of Italian winery coalitions (wine denominations) to analyze the economics and determinants of collective reputation. We first run a cross‐sectional analysis with 2008 data and the full set of control variables, then move to the dynamics of collective reputation with panel data analysis on a 30‐year time span (1978–2008). Group reputation is history‐dependent. In particular, past bad collective behavior increases the probability of being stuck in a “bad reputation trap.” Minimum quality standards and effective enforcement are fundamental drivers of group reputation. The relationship between group size and collective reputation is non‐linear: free entry may not be optimal due to free‐riding problems. Finally, institutional signals such as the wine classification system are useful because they can be used by consumers as easily available proxies for information that is much more difficult to acquire.

On Technological Change in Crop Yields

Abstract: Technological changes in agriculture tend to alter the mass associated with segments or components of the yield distribution as opposed to simply shifting the entire distribution upwards. We propose modeling crop yields using mixtures with embedded trend functions to account for potentially different rates of technological change in different components of the yield distribution. By doing so we can test some interesting and previously untested hypotheses about the data generating process of yields. For example: (1) is the rate of technological change equivalent across components, and (2) are the probabilities of components constant over time? Our results—technological change is not equivalent across components and probabilities tend not to have changed significantly over time—have implications for modeling yields. We find estimated conditional yield densities are quite different when unique trend functions are embedded inside the mixture components versus estimating the same mixture with detrended data. Also, we prove different rates of technological change in different components lead to nonconstant variance with respect to time (i.e., heteroscedasticity). We present two applications of the proposed yield model. The first application considers climate determinants of component membership, where our results are consistent with the literature for climate determinants of yields. The second application compares the proposed yield model to USDA's current rating methodology for area‐yield crop insurance contracts and finds the proposed model may lead to more accurate rates.

Optimal Directions for Directional Distance Functions: An Exploration of Potential Reductions of Greenhouse Gases

Abstract: This study explores the reduction potential of greenhouse gases for major pollution emitting countries of the world using nonparametric productivity measurement methods and directional distance functions. In contrast to the existing literature we apply optimization methods to endogenously determine optimal directions for the efficiency analysis. These directions represent the compromise of output enhancement and emissions reduction. The results show that for reasonable directions the adoption of best-practices would lead to sizable emission reductions in a range of about 20 percent compared to current levels.

Transaction Costs in Payment for Environmental Service Contracts

Abstract: Citation: Jeffrey M. Peterson, Craig M. Smith, John C. Leatherman, Nathan P. Hendricks, John A. Fox; Transaction Costs in Payment for Environmental Service Contracts, American Journal of Agricultural Economics, Volume 97, Issue 1, 1 January 2015, Pages 219–238, https://doi.org/10.1093/ajae/aau071

Direct Payments, Spatial Competition, and Farm Survival in Norway

Abstract: We argue that farm survival is influenced by neighboring farmers’ characteristics and, in particular, by the direct payments neighboring farmers receive. The article shows empirically that these interdependencies are crucial for an assessment of the effects of direct payments on farm survival. Using spatially explicit farm‐level data for nearly all Norwegian farms, a spatial probit model is estimated to explain farm survival from 1999 to 2009 controlling for spatial farm interdependence. We show that ignoring spatial interdependencies between farms leads to a substantial overestimation of the effects of direct payments on farm survival. To our knowledge, this article is the first attempt to empirically analyze the importance of neighboring interdependencies for the effects of direct payments on farm survival.

Effects of Short-Term Measures to Curb Air Pollution: Evidence from Santiago, Chile

Abstract: It is well established that exposure to high levels of air pollution in the short term leads to negative health outcomes; yet there exist very few policies intended to address short run spikes in air pollution. In this article we examine a policy implemented by the Government of Chile that uses temporary measures to reduce the severity and negative health impacts of poor air quality in the short run. This policy involves the announcement of “Environmental Episodes” on days forecast to have particularly poor air quality. Such Episode announcements trigger a number of government protocols and public notices intended to both improve regional air quality and encourage avoidance behaviors among the populace. By comparing days on which Episodes were announced to observationally similar days before the policy was fully implemented, we demonstrate that the announcement of an Environmental Episode reduces ambient concentrations of particulate matter in the Santiago Metropolitan Region by approximately 20% on the day of implementation, with effects persisting into subsequent days. We also find that the temporary restrictions, government actions, and informational campaigns that make up an Episode reduce mortality among the elderly on the day‐of and days‐after Episode implementation. Our findings suggest that the Environmental Episode program effectively addresses poor air quality in the short term and could serve as a valuable model for policymakers seeking to augment long‐term air quality strategies with a means of addressing temporary spikes in local or regional air pollution levels.

The Impact of AD HOC Disaster and Crop Insurance Programs on the Use of Risk-Reducing Conservation Tillage Practices

Abstract: The paper estimates the impacts of risk‐reducing government programs on the use of conservation tillage (no‐till and other conservation tillage) practices in agriculture. Conservation tillage can be used to reduce production risk from weather shocks. However, subsidized crop insurance and disaster payments also reduce risk through financial assistance. The paper examines the extent to which risk‐reducing tillage practices and government programs are substitutes for each other. The economic model shows that a decline in average weather conditions increases the use of conservation tillage. The economic model also shows that the impact of weather risk and risk aversion on risk‐reducing practices like conservation tillage are ambiguous. The effect depends on the degree that losses are offset by government payments. The paper uses county‐level tillage practice data from the Conservation Tillage Information Center for the three‐state region of Iowa, Nebraska, and South Dakota. Results are estimated using instrumental variables and spatial panel data techniques. Instruments for the program participation and payment data include political variables and weather data. The empirical analysis shows that recent disaster and indemnity payments are associated with an increase in the use of no‐till and a decrease in the use of other conservation till. Results also show that producers in counties with recent drought and flood events are more likely to use other conservation tillage. The results imply that there may be unintended impacts of changes to agricultural policies like disaster payments and crop insurance on the use of on‐farm conservation practices.

Capitalized Amenity Value of Native Vegetation in a Multifunctional Rural Landscape

Abstract: In many parts of the world, natural vegetation has been cleared to allow agricultural production. To ensure a long-term flow of ecosystem services without compromising agricultural activities, restoring the environment requires a balance between public and private benefits and costs. Information abo