1993

December, 1993

END MATERIALS

This section includes: Editors' 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, 1993

MONETARY IMPACTS ON PRICES IN THE SHORT AND LONG RUN: FURTHER RESULTS FOR THE UNITED STATES

By: Choe, Young Chan; Koo, Won W.
This study examines the long-run neutrality of money and the short-run dynamics of farm and nonfarm prices to the monetary shock, using Johansen's approach. Results find a long-run equality of prices, but not neutrality. In the short-run, farm prices adjust faster than nonfarm prices to a monetary shock.
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December, 1993

QUANTIFYING THE EFFECTS OF NEW PRODUCT DEVELOPMENT: THE CASE OF LOW-FAT GROUND BEEF

By: Brester, Gary W.; Lhermite, Pascale; Goodwin, Barry K.; Hunt, Melvin C.
Low-fat ground beef (LFGB) is a new product designed to be as palatable as beef products that contain significantly higher levels of fat. A hedonic model shows that each unitary increase in the leanness of ground beef products carries a price premium of $.0206/lb. If LFGB garners a 10% share of the ground beef market, the retail price of all ground beef products will increase by $.01/lb. and consumption will increase by 39.75 million lbs. The price of commercial cows will increase by $.56/cwt. Price quantity, and welfare measures are magnified as the market share captured by LFGB increases.
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December, 1993

FUNCTIONAL FORM AND U.S. AGRICULTURAL PRODUCTION ELASTICITIES

By: Shumway, C. Richard; Lim, Hongil
Because so much agricultural policy analysis utilizes estimates of supply and demand elasticities, it is crucial to obtain the most reliable estimates possible. Where reliability cannot be adequately assessed, the sensitivity of elasticities to equally plausible a priori specifications should at least be ascertained. In this article, the sensitivity of U.S. output supply and input demand elasticities to choice of functional form. Considerable sensitivity is found to choice of functional form. Although most frequently used, the translog is generally the outlier and is the least preferred among the alternatives.
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December, 1993

MEASURING FOOD SAFETY PREFERENCES: IDENTIFYING CONSUMER SEGMENTS

By: Baker, Gregory A.; Crosbie, Peter J.
Conjoint analysis was used to estimate individual preference functions for food safety attributes. Consumer segments were constructed by using cluster analysis to form groups which were homogeneous with respect to preferences regarding food safety. Although substantial differences existed among the three distinct groups, consumers in all segments were willing to pay a moderate amount to ensure that apples met established safety standards. However, a policy which restricts pesticide use would likely result in substantial consumer dissatisfaction, unless it could be achieved with little impact on price or quality.
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December, 1993

THE DYNAMIC EFFECTS OF AGRICULTURAL SUBSIDIES IN THE UNITED STATES

By: de Gorter, Harry; Fisher, Eric O’N.
This article analyzes the dynamics effects of the farm subsidies in the United States. The subsidies a farmer receives are based upon historical plantings, also called based acreage. It is sometimes optimal for a farmer temporarily not to participate in a program in order to increase future subsidies. The farmer's optimal policy is the solution to a deterministic dynamic program. Farmers with low base acreage opt out of these programs, whereas those with high base acreage participate in them. The article examines aggregate data involving corn, cotton, rice, and wheat during 1987. It shows that these programs increase the output of each of these crops and represent an annual deadweight loss of more than $2 billion.
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December, 1993

LIFETIME LEVERAGE CHOICE FOR PROPRIETARY FARMERS IN A DYNAMIC STOCHASTIC ENVIRONMENT

By: Collins, Robert A.; Karp, Larry S.
This article reviews various models that may be used to explain optimal leverage choice for the proprietary farmer in a stochastic dynamic environment and develops a new model that highlights the risk of failure rather than the usual concept of risk as the variability of wealth. The model suggests that in addition to the usual factors, farm financial leverage is affected by age, wealth, and the opportunity cost of farming.
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December, 1993

VALUING AMBIGUITY: THE CASE OF GENETICALLY ENGINEERED GROWTH ENHANCERS

By: Buhr, Brian L.; Hayes, Dermot J.; Shogren, Jason F.; Kliebenstein, James B.
A split-valuation method is developed and implemented to elicit the willingness to pay to consume- or avoid consuming- a product of ambiguous quality. The split-valuation method uses experimental auction markets to separate and value the positive and negative attributes of the ambiguous good. The results show that the method can be used to successfully value a good ambiguous quality. Our application reveals that for a sample of students at a midwestern land-grant institution, the average respondent is willing to pay a premium for meat produced with the use of a genetically engineered growth enhancer that has 30% to 60% fewer calories and is 10% to 20% leaner.
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December, 1993

BEEF QUALITY: WILL CONSUMERS PAY FOR LESS FAT?

By: Unnevehr, Laurian J.; Bard, Sharon K.
A nationwide retail survey is used to estimate hedonic prices of fat characteristics in beef table cuts. Results show that consumers consistently place a negative value on external fat for all table cuts and on seam fat in chuck and round cuts, but do not consistently value intramuscular fat. These consumer preferences are not transmitted to cattle feeders through price signals, even though the current beef grading system can distinguish carcasses with undesirable fat characteristics.
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December, 1993

COMPARISON OF LIQUIDITY COSTS BETWEEN THE KANSAS CITY AND CHICAGO WHEAT FUTURES CONTRACTS

By: Thompson, Sarahelen R.; Eales, James S.; Seibold, David
The objectives of this study were to: (a) quantify differences in liquidity costs between Kansas City and Chicago wheat futures contracts, and (b) identify the factors which influence liquidity in these two markets. Regression results suggest that there are significant differences in liquidity costs between Chicago and Kansas City which are in part due to the lower trading volume at Kansas City. However, there appears to be a significantly higher cost of doing business at Kansas City which is independent of trading volume. The implications of these findings to traders is that transacting is more expensive in Kansas City than in Chicago.
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December, 1993

A NONPARAMETRIC EFFICIENCY ANALYSIS OF CALIFORNIA COTTON GINNING COOPERATIVES

By: Caputo, Michael R.; Lynch, Lori
In the spirit of Leamer's commitment to sensitivity analysis, we employ Farrell's nonparametric efficiency methodology and compare our results with those of Sexton, Wilson, and Wann. Testing the implicit assumption of technical efficiency in the methodology employed by Sexton, Wilson, and Wann, we find that the lack of technical efficiency is the cotton gins' main cause of overall inefficiency. We extend the nonparametric methodology by subjecting the shadow prices of technical efficiency to nonparametric statistical tests to draw stronger conclusions. In addition, the nonparametric methodology permits us to make gin-specific recommendations to improve the performance of the gins.
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December, 1993

WHEAT CLEANING DECISIONS AT COUNTRY ELEVATORS

By: Johnson, D. Demcey; Wilson, William W.
This article presents a mathematical programming model of wheat cleaning and blending decisions at a country elevator. Simulations are performed to illustrate the sensitivity of cleaning to selected variables, including the value of screenings, transportation costs, and market discounts for excess dockage. In addition, the model is used to assess the impact of including dockage in the grade standards for wheat.
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December, 1993

CLEARANCE SALES IN THE FARMLAND MARKET?

By: Featherstone, Allen M.; Schurle, Bryan W.; Duncan, Steven S.; Postier, Kevin D.
The ultimate loss financial institutions bear for foreclosed loans is determined by their success in liquidating their acquired property portfolios. This study examines the price received for land sold by private individuals and financial institutions from 1977 through 1990. After adjusting for quality differences, financial institutions received on average 9.2% less than private individuals. Further analysis reveals that commercial banks received a discount of 5.8%, the Farm Credit System (FCS) a 9.2% discount, and Farmers Home Administration (FmHA) a 14.7% discount. For this sample of 13,375 Kansas sales, it is estimated that the sum of the transfers from financial institutions to land buyers amounted to $9.2 million.
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July, 1993

RISK AND PROBABILITY PREMIUMS FOR CARA UTILITY FUNCTIONS

By: Babcock, Bruce A.; Choi, E. Kwan; Feinerman, Eli
The risk premium and the probability premium are used to determine appropriate coefficients of absolute risk aversion under CARA utility. A defensible range of risk aversion coefficients is defined by the coefficients that correspond to risk premiums falling between 1 and 99% of the amount at risk or to probability premiums falling between .005 and .49 for a lottery that pays or loses a given sum. The consequences of ignoring risk premiums when selecting risk-aversion coefficients for representative decision makers are illustrated by calculation of the implied risk premium associated with the levels of absolute risk aversion assumed in six selected studies.
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July, 1993

AN ANALYSIS OF ECONOMIC EFFICIENCY IN AGRICULTURE: A NONPARAMETRIC APPROACH

By: Chavas, Jean-Paul; Aliber, Michael
A nonparametric analysis of technical, allocative, scale, and scope efficiency of agricultural production is presented based on a sample of Wisconsin farmers. The results indicate the existence of important economies of scale on very small farms, and of some diseconomies of scale for the larger farms. Also, it is found that most farms exhibit substantial economies of scope, but that such economies tend to decline sharply with the size of the enterprises. Finally, the empirical evidence suggests significant linkages between the financial structure of the farms and their economic efficiency.
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July, 1993

ACREAGE RESPONSE, EXPECTED PRICE FUNCTIONS, AND ENDOGENOUS PRICE EXPECTATIONS

By: Choi, Jung-Sup; Helmberger, Peter G.
Taking the price of futures as a proxy for expected price, this article treats acreage planted to soybean, the price of futures, and other variables as jointly dependent. A futures price equation is embedded in a simultaneous equations model along with the consumption demand and acreage response. The model is estimated using both ordinary and three-stage least squares. Estimated price elasticities for consumption demand, demand for stocks, and acreage response equal, respectively, -.5, -1.8, and +.2 (short run) and +.59 (long run).
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