Volume 17, Issue 2, December 1992

December, 1992

EXISTENCE OF UNIQUE LIMITING PROBABILITY VECTORS IN STOCHASTIC PROCESSES WITH MULTIPLE TRANSITION MATRICES

By: Mjelde, James W.; Harris, Wesley D.; Conner, J. Richard; Schnitkey, Gary D.; Glover, Michael K.; Garoian, Lee
Concepts associated with stochastic process containing multiple transition matricies are discussed. It is proved that under certain conditions, a process with m transition matrices has m unique limiting probability vectors. This result extends the notion of discrete Markov processes to problems with intrayear and interyear dynamics. An example using a large DP model illustrates the usefulness of the concepts developed to applied problems.
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December, 1992

MARKET WINDOWS AND HEDONIC PRICE ANALYSES: AN APPLICATION TO THE APPLE INSDUSTRY

By: Tronstad, Russell; Huthoefer, Lori Stephens; Monke, Eric A.
Marketing concepts associated with quality, location, and time are integrated into a complete model, revealing the linkages between market window approaches and hedonic analysis. An integrated hedonic price model for the U.S. apple industry was estimated. Results suggested that size, storage method, grade, and seasonality are the most important influences on the price of apples. Area of apple origin and variety were the least important influences on apple prices, with the exception of the Granny Smith variety.
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December, 1992

USDA DATA REVISIONS OF CHOICE BEEF PRICES AND PRICE SPREADS: IMPLICATIONS FOR ESTIMATING DEMAND RESPONSES

By: Marsh, John M.
Reduced form price equations were estimated to compare market demand responses from two data sources: U.S. Department of Agriculture (USDA) beef price and price spread data per revisions in 1978 and per revisions in 1990. The latest revisions were necessary to account for changing beef industry technology and product consumption in the 1980s. Results indicate the elasticities of retail and derived demands average about 25 and 17% lower, respectively, when using the 1990 revised data. Trends and lag adjustments played an important role. The analyses suggest careful interpretation of demand responses when time series data lag technology conditions in the market.
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December, 1992

FACTORS INFLUENCING PRODUCER SUPPORT FOR A STATE MANDATORY SEED LAW: AN EMPIRICAL ANALYSIS

By: Makus, Larry D.; Guenthner, Joseph F.; Lin, Biing-Hwan
A probit model identifies characteristics influencing Idaho potato producer support or opposition to a state mandatory certified seed law. Economic self interest appears to be the most important influencer. Current users of certified seed and growers of certified seed are strong supporters. However, producer attitudes about the impact of seed-borne diseases and effectiveness of certified seed as a control mechanism also are important. Respondent characteristics (gross farm income, potato acreage, and geographic region of the state) seem to be less important influencers.
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December, 1992

IN DEFENSE OF FENCE TO FENCE: CAN THE BACKWARD BENDING SUPPLY CURVE EXIST?

By: Just, Richard E.; Zilberman, David
Politicians dealing with the "farm problem" sometimes lament that output increases when prices go up and when prices go down. This article presents three possible theoretical explanations. In the first, farmers deplete soil (over-farm) when prices are low and imperfect capital markets prevent borrowing. In the second, farmers in financial stress (low prices) allocate more family labor to farming to meet debt-repayment constraints. In the third, wealth held in farmland tends to decline as prices decline. With decreasing absolute risk aversion, this increases risk aversion which, in extreme cases, causes negative supply response.
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December, 1992

RISK AND RETURN IN AGRICULTURE: EVIDENCE FROM AN EXPLICIT-FACTOR ARBITRAGE PRICING MODEL

By: Bjornson, Bruce; Innes, Robert
This article develops and estimates an explicit-factor Arbitrage Pricing Theory (APT) model in an endeavor to uncover (a) the systematic risk properties of returns to agricultural assets, (b) the relationship between agricultural returns and returns on comparable-risk nonagricultural assets, and (c) the possible relevance of agriculture-related risks in general capital markets. The article concludes that: (a) farmer-held assets have exhibited significant systematic/ factor risk over the 1963-82 estimation interval, but U.S. farmland has not exhibited such risk; (b) a grain-price index has been a priced factor in general capital markets; and (c) average returns on farmer-held assets have been significantly lower; and average returns on U.S. farmland significantly higher, than those on comparable-risk nonagricultural assets.
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December, 1992

A CLASS OF SEPARABILITY FLEXIBLE FUNCTIONAL FORMS

By: Driscoll, Paul J.; McGuirk, Anya M.
Quadratic flexible forms, such as the translog and generalized Leontief, are separability inflexible. That is, separability restrictions render them inflexible with regard to separable structures. A class functional forms is proposed that is flexible with regard to general production structures and remains flexible regarding weakly separable structures when separability restrictions are imposed, thus permitting tests of the separability hypothesis. Additionally, the restricted forms are parsimonious; that is they contain the minimum number of parameters with which flexibility can be achieved.
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December, 1992

CERTIFICATION AND SUPPLY RESPONSE IN THE ORGANIC LETTUCE MARKET

By: Lohr, Luanne; Park, Timothy A.
The impact of supply relationships and certification programs on the organic lettuce market is examined using an integrated partial adjustment and asymmetric supply response model. Costs associated with organic certification, production, and marketing have not restricted producers' abilities to respond to price signals. Organic growers allocate output between certified and noncertified markets in response to changing price premiums. Estimates of short-run supply elasticities indicate that organic lettuce growers are more responsive to price changes than producers of nonorganic lettuce. Long-run elasticity has increased since 1988, a change that coincides with the market entry of larger producers.
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December, 1992

THE VALUE OF REDUCING TEMPORAL INPUT NONUNIFORMITIES

By: Babcock, Bruce A.; Blackmer, Alfred M.
The producer value of reducing temporal uncertainty concerning the level of soil nitrate is estimated for corn production in Iowa. The reduction in uncertainty is obtained through use of a late-spring nitrate test. Parametric representations of conditional densities of soil nitrates are used along with an estimated production function to estimate optimal nitrogen fertilizer applications under both uncertainty and certainty for a representative risk-neutral Iowa corn farm. Results indicate that decreasing uncertainty could reduce average fertilizer applications by up to 38% and that producer returns could be increased by up to $22.08/acre.
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December, 1992

OPTIMAL RISK MANAGEMENT, RISK AVERSION, AND PRODUCTION FUNCTION PROPERTIES

By: Loehman, Edna T.; Nelson, Carl H.
For production risk with identified physical causes, the nature of risk, production characteristics, risk preference, and prices determine optimal input use. Here, a two-way classification for pairs of inputs - each input as being risk increasing or decreasing and pairs as being risk substitutes or complements - provides sufficient conditions to determine how risk aversion should affect input use. Unlike the Sandmo price risk averse firm may produce more expected output and use more inputs than a risk neutral firm. Sufficient conditions to determine types for pairs of inputs are also related to properties of the production function.
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December, 1992

END MATERIALS

This section includes: Editor's Report for 1992-93; Reviewers, July 1992-June 1993; WAEA 1992 Award Winners; Past Presidents, Western Agricultural Economics Association 1927-93; Past Editors, Western Journal of Agricultural Economics, 1977-91; Guidelines for Submitting Manuscripts; Membership Information; Back Cover
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December, 1992

DYNAMICS AND PRICE VOLATILITY IN FARM-RETAIL LIVESTOCK PRICE RELATIONSHIPS

By: Kesavan, T.; Aradhyula, Satheesh V.; Johnson, Stanley R.
This study uses an error correction model (ECM) to investigate dynamics in farm-retail price relationships. The ECM is a more general method of incorporating dynamics and the long-run, steady-state relationships between farm and retail prices than has been used to data. Monthly data for beef and pork are used to test the time-series properties for the ECM specification. The model is extended to study price volatility through the generalized autoregressive conditional heteroskedasticity (GARCH) process. Accommodation of the GARCH process provides a useful way of analyzing both mean and variance effects of policy or market structure changes.
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December, 1992

A LINEAR INVERSE DEMAND SYSTEM

By: Moschini, GianCarlo; Vissa, Anuradha
We present an inverse demand that can be estimated in a linear form. The model is derived from a specification of the distance function which is parametrically similar to the cost function underlying the Almost Ideal Demand System. Simulation results suggest that this linear inverse demand system has good approximation properties.
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