Volume 17, Issue 1, July 1992

July, 1992

ECONOMIC IMPLICATIONS OF GLOBAL CLIMATE CHANGE FOR WORLD AGRICULTURE

By: Tobey, James A.; Reilly, John M.; Kane, Sally
This paper challenges the hypothesis that negative yield effects in key temperate grain producing regions of the world resulting from global climate change would have a serious impact on world food production. Model results demonstrate that even with concurrent productivity losses in the major grain producing regions of the world, global warming will not seriously disrupt world agricultural markets. Country/regional crop yield changes induce interregional adjustments in production and consumption that serve to buffer the severity of climate change impacts on world agriculture and result in relatively modest impacts on world agricultural prices and domestic economies.
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July, 1992

A ROTTERDAM APPLICATION TO INTERNATIONAL TRADE IN FRESH APPLES: A DIFFERENTIAL APPROACH

By: Seale, James L., Jr.; Sparks, Amy L.; Buxton, Boyd M.
A Rotterdam import allocation model is used to fit import data for fresh apples in four importing markets important to U.S. apple exporters. Nested tests rejected homotheticity but could not reject homogeneity, symmetry, or separability among import suppliers. A Monte Carlo test rejected first-order autocorrelation in each market. Expenditure and price elasticities are calculated and reported.
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July, 1992

INFORMATION IMPACTS AND DETERMINANTS OF INFORMATION SELECTION: AN EXPERIMENTAL APPROACH

By: Ruppel, Fred J.; Fuller, Stephen W.
Laboratory experimentation was used to assess the impacts of information disclosure in imperfect markets. A dual oligopoly market structure was designed with contract information disclosed to subjects under three treatments: no, partial, and full disclosure. Regression analysis revealed some increase in selling price with full information disclosure, but no discernable effects on negotiated prices with partial disclosure. Alternative specifications showed large traders earning significantly lower profits, and information on large traders significantly beneficial to both buyers and sellers. Probit analysis of information selection determinants revealed no significant economic content in trader requests for information under partial disclosure.
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July, 1992

AN ANALYSIS OF FACTORS ASSOCIATED WITH CONSUMERS’ USE OF GROCERY COUPONS

By: Goodwin, Barry K.
A conceptual model of grocery coupon usage is developed and maximum likelihood estimates of a Tobit model are used to assess the influence of several economic and demographic variables on consumers' use of grocery coupons. Specific factors considered include income, age, household size, race, education, shopping practices, and size and composition of grocery transactions. The analysis includes a combination of scanner and survey data collected from 1,047 consumers. Results confirm strong effects for household size, race, shopping practices, and size and composition of grocery transactions.
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July, 1992

CASH FORWARD CONTRACTING VERSUS HEDGING OF FED CATTLE, AND THE IMPACT OF CASH CONTRACTING ON CASH PRICES

By: Elam, Emmett W.
This research examines cash forward contracting of fed cattle. For an individual feeder, a cash contract eliminates basis risk (as compared to a futures hedge). However, the disadvantage is that the contract price is estimated to be lower than the futures hedge price by $.28 - $.59/ cwt for steers and $.86 - $1.64.cwt for heifers. From the industry perspective, contracting appears to have a negative impact on cash prices. An increase of 1,000 head in U.S. monthly contract cattle shipments is associated with a $.003-$.009/cwt decrease in the U.S. average cash price. The negative impact of cash contracting varies by state.
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July, 1992

ON THE AGGREGATION OF MONEY MEASURES OF WELL-BEING IN APPLIED WELFARE ECONOMICS

By: Donaldson, David
This article investigates the properties, good and bad, of social evaluations based on four money measures of well-being or changes in well-being: compensating variations, money metrics, extended money metrics, and welfare ratios. Consistency of social rankings (transitivity, asymmetry of preference), the possibility of incorporating inequality aversions, independence of the choice of reference prices, and the ethics implicit in the evaluations are considered. In addition, these procedures are contrasted with utility aggregation using equivalence scales.
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July, 1992

RISK COSTS AND THE CHOICE OF MARKET RETURN INDEX

By: Amegbeto, Koffi N.; Featherstone, Allen M.
Six measures of returns are used to estimate the most "appropriate" market index for southeast Kansas farms. Results suggest that localized indices are more appropriate than state indices for use as the market index. The appropriate index was used to estimate systematic and nonsystematic risk and risk costs for farm planning. Estimated risks depend on the choice of market index, whereas risk costs depend on the index choice and the risk aversion are considered. More risk-averse specialized farmers are not completely compensated for risk.
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July, 1992

FARM OPERATING RISK AND CASH RENT DETERMINATION

By: Turvey, Calum G.; Baker, Timothy G.; Weersink, Alfons
This article examines farm operating risks and cash-rent determination through the use of the efficient set mathematics. The efficient set mathematics proves to be a pragmatic approach to characterizing operating risks, and the relationships between operating risks and cash-rent determination. Various separation theorems are used to postulate the relationship between operating risk and cash rents. Preliminary evidence appears to support the theoretical conclusion that opperating risk and cash-rent determination are related.
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July, 1992

MULTIPLE-OUTPUT PRODUCTION MODELED WITH THREE FUNCTIONAL FORMS

By: Villezca-Becerra, Pedro A.; Shumway, C. Richard
Aggregate dual models are specified to examine multiple-output production relationships in each of four major, geographically dispersed, agricultural states (California, Iowa, Texas, and Florida). Three locally-flexible functional forms (translog, generalized Leontief, and normalized quadratic) are employed to conduct analytic simplification tests, estimate systems of output supply and input demand equations consistent with nonrejected hypotheses, derive elasticities, and determine to what extent analytic simplification tests and policy-relevant results are sensitive to functional form and state. Important differences in empirical implications were found due both to functional form and geographic unit, but differences were greater for the latter.
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July, 1992

IMPACTS OF LIBERALIZING THE JAPANESE PORK MARKET

By: Wahl, Thomas I.; Hayes, Dermot J.; Johnson, Stanley R.
The Japanese pork market is protected by a complex set of restrictions, including a variable levy and an import tariff. The combination of these policies distorts the quantity, price, and form of Japanese pork imports. An important issue relevant to the liberalization of the Japanese pork market is the accurate measurement of the price wedge between Japanese and world pork prices. The analysis indicates that the tariff equivalent of the price wedge over the 1986-88 period was 44%. If the tariff equivalent of the price wedge is reduced over a ten-year period, Japanese pork imports are projected to increase by over 39% initially and by over 215% compared to baseline projections by the year 2000. Producer welfare can be maintained by a deficiency payment scheme. A less costly alternative is an industry buffer scheme, which maintains the level of the pork industry for two years and then implements a declining deficiency payment scheme that limits the decrease in production levels to 5% per year.
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July, 1992

A MULTICROP PRODUCTION MODEL OF IRRIGATED AGRICULTURE, APPLIED TO WATER ALLOCATION POLICY OF THE BUREAU OF RECLAMATION

By: Moore, Michael R.; Negri, Donald H.
Recipients of irrigation water from the Bureau of Reclamation (BuRec) face a future of water conservation. By formally modeling surface water as a fixed, allocatable input to a multioutput firm, this research captures the institutional constraints governing water allocation and , simultaneously, establishes a cohesive approach to analyzing the production effects of BuRec allocation policy. Econometric results show that BuRec-served irrigators' crop supply and land allocation decisions are generally inelastic with respect to the water constraint. Using the elasticities, a policy simulation of a 10% reduction in BuRec water allocation indicates that production response to reduced water supply would affect the national price of three of ten major crops produced by BuRec-served farms.
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July, 1992

ALTERNATIVE MEASURES OF RISK IN COMMODITY SUPPLY MODELS: AN ANALYSIS OF SOW FARROWING DECISIONS IN THE UNITED STATES

By: Holt, Matthew T.; Moschini, GianCarlo
The role of price risk in sow farrowings is investigated by using bivariate ARCH-M and GARCH-M models and a nonparametric kernel estimator. To account for the relevant time horizon of irreversible supply decisions, predictions for mean price and conditional price variance are iterated forward. The empirical results vary markedly in terms of their implications for risk response in hog supply decisions, with the ARCH-M and GARCH-M models suggesting a small and negative risk effect. Estimates of the marginal risk premium also indicate moderate and variable departures from marginal cost pricing in sow farrowing supply decisions.
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July, 1992

HETEROSKEDASTICITY IN CROP YIELD MODELS

By: Yang, Seung-Ryong; Koo, Won W.; Wilson, William W.
This study examines three alternative models of correcting for heteroskedasticity in wheat yield: the time trend variance, the GARCH, and an econometric model that includes the potential sources of heteroskedasticity. Nonnested test results suggest that modeling the sources of heteroskedasticity is the preferred procedure. Including potential sources of heteroskedasticity as explanatory variables removed the heteroskedasticity in the sample wheat yields. The results also suggest that the GARCH specification is a promising model of correcting for heteroskedasticity when the sources cannot be identified. The time trend variance model alone may misspecify the true variance structure.
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July, 1992

MODELING THE EFFECT OF UNCERTAINTY ON TIMBER HARVEST: A SUGGESTED APPROACH AND EMPIRICAL EXAMPLE

By: van Kooten, G. Cornelis; van Kooten, R.E.; Brown, G.L.
A method is suggested for modeling uncertainty when there is a lack of information concerning the effect of forest management decisions on tree growth. Dynamic programming is used to investigate the optimality of alternative management strategies. The model is illustrated with an empirical example for a boreal forest region of western Canada. Three tentative conclusions follow: (a) silvicultural strategies to reduce uncertainty or to increase stand growth may not be worth pursuing, at least in northern forests; (b) the discounted cost of ignoring uncertainty may be substantial if taken over the entire forest; and (c) given uncertain forest growth, flexible harvest policies are preferred to a fixed harvest age.
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July, 1992

AN EMPIRICAL APPLICATION OF LABORATORY EXPERIMENTAL AUCTIONS IN MARKETING RESEARCH

By: Menkhaus, Dale J.; Borden, George W.; Whipple, Glen D.; Hoffman, Elizabeth; Field, Ray A.
A laboratory experimental auction was used to determine factors influencing the relative value consumers place on alternative retail beef packaging. Results indicate information is very important for the successful introduction and marketing of the vacuum skin package. Physical appearance of the beef plays a major role in purchasing decisions by consumers, with fat and shape significantly decreasing the value of beef in the vacuum skin package relative to beef in the overwrapped styrofoam tray package. Experimental economics procedures, when combined with traditional marketing research techniques, can provide useful information for marketing decisions and economic analyses.
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July, 1992

THE ECONOMIC THRESHOLD FOR GRASSHOPPER CONTROL ON PUBLIC RANGELANDS

By: Davis, Robert M.; Skold, Melvin D.; Berry, James S.; Kemp, William P.
The U.S. Department of Agriculture's Animal and Plant Health Inspection Service (APHIS) is responsible for controlling grasshopper populations on public rangelands. Under current guidelines, control of grasshoppers on rangeland should occur if grasshopper densities are at least eight per square yard. This article evaluates the concept of an economic threshold relative to the value of forage saved from destruction during a grasshopper outbreak. It is shown that financial justification for treating grasshopper outbreaks depends upon grasshopper density, rangeland productivity, climate factors, livestock cost and return relationships, and the efficacy of treatment options.
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July, 1992

FARM MACHINERY INVESTMENT AND THE TAX REFORM ACT OF 1986

By: LeBlanc, Michael; Hrubovcak, James; Durst, Ron L.; Conway, Roger K.
The Tax Reform Act of 1986 significantly changed incentives for investing. This analysis specifically examines how changes in marginal tax rates, depreciation schedules, and the investment tax credit altered the cost of capital and net investment in agriculture. A stochastic coefficients econometric methodology is used to estimate an investment function which is then used to simulate the effects of tax reform. Estimates indicated that relative to prior law, the Tax Reform Act will reduce the capital stock of farm machinery and equipment by nearly $4 billion.
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July, 1992

FARM-LEVEL RESPONSE TO AGRICULTURAL EFFLUENT CONTROL STRATEGIES: THE CASE OF THE WILLAMETTE VALLEY

By: Taylor, Michael L.; Adams, Richard M.; Miller, Stanley F.
This article examines economic incentives and other mechanisms to offset non-point source pollution from agriculture. A biophysical simulator to estimate technical relationships is linked to linear programming models for representative farms in the Willamette Valley of Oregon. The models are then optimized for profit maximization under alternative non-point pollution control policies. The results indicate that site-specific resource conditions and production possibilities greatly influence policy effectiveness and the cost of achieving pollution abatement. Nevertheless, some abatement is possible on all farms for relatively little cost.
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