Volume 18, Issue 1, July 1993

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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July, 1993

DO CORN FARMERS HAVE TOO MUCH FAITH IN THE SUGAR PROGRAM?

By: Rendleman, C. Matthew; Hertel, Thomas W.
Corn producers frequently have been told that the sugar program provides an important stimulus to corn demand through its positive influence on the high fructose corn syrup sector. In this article we qualify the extent of this support and find it to be very small- not more than 3 cents per bushel, and probably less. Previous studies have overstated this effect due a lack of attention to the interindustry linkages in the sweetener complex.
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July, 1993

THE IMPACT OF POLLUTION CONTROLS ON LIVESTOCK-CROP PRODUCERS

By: Schnitkey, Gary D.; Miranda, Mario J.
A discrete-time, continuous-space model of a livestock- crop producer is used to examine the long-run effects of phosphorus runoff controls on optimal livestock production and manure application practices. Quantity restrictions and taxes on phosphorus application are shown to reduce livestock supply and impose greater costs on livestock-crop producers than on crop-only producers. Restrictions on manure application, without accompanying restrictions on commercial fertilizer application, will have only a limited effect on phosphorus runoff levels.
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July, 1993

SECTORAL EFFECTS OF A WORLD OIL PRICE SHOCK: ECONOMYWIDE LINKAGES TO THE AGRICULTURAL SECTOR

By: Hanson, Kenneth; Robinson, Sherman; Schluter, Gerald E.
The effects of a world oil price shock on U.S. agriculture are analyzed in an economywide environment. We use an input-output model to analyze the direct and indirect cost linkages between energy and other sectors of the economy. Then, to allow sectoral output adjustment and the effects on the U.S. current account, we use the U.S. Department of Agricultural/Economic Research Service Computable General Equilibrium (CGE) model to analyze the sectoral effects under three different macro adjustment scenarios. The effects on agriculture are not limited to the direct and indirect energy costs and government support programs for agricultural also matter.
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July, 1993

ELECTRONIC MARKET USE BY OKLAHOMA LAMB PRODUCERS

By: Koontz, Stephen R.; Ward, Clement E.
Socioeconomic and production system characteristics of a sample of Oklahoma sheep producers were employed to examine the decision to use or not use an electronic market for slaughter lambs. Producer attributes that influence electronic market use were identified with qualitative choice models. The results help identify characteristics of electronic markets which influence their success. The findings also have implications about educational opportunities for cooperative extension.
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July, 1993

FARM VALUE OF TOPSOIL IN SPRING WHEAT PRODUCTION

By: Williams, Jeffery R.; Tanaka, Donald L.; Herbel, Kevin L.
Relationships among topsoil removal treatments and additions of nitrogen and phosphorus fertilizer in spring wheat yields are used to determine the effects on net returns and to estimate the marginal value of soil. The results indicate that risk-averse managers are not willing to make an expenditure for controlling erosion from the first 2.5 inches of soil if the erosion rate is 20 tons/acre/year or less and the planning horizon is 20 years or less. These managers would be willing to make an erosion control investment for the second 2.5 inches of soil equivalent to $4.90 to $5.20/acre from the twenty-first to forty-third year in the planning horizon.
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July, 1993

A GSD ESTIMATION OF THE RELATIVE WORTH OF COVER CROPS IN COTTON PRODUCTION SYSTEMS

By: Giesler, G. Grant; Paxton, Kenneth W.; Millhollon, E.P.
Cover crops can help reduce the negative environmental impacts of cotton production. Using time series yield data, this study utilizes generalized stochastic dominance to evaluate the relative worth, via risk premiums, of three cover crop and two conventional production systems based on expected net returns of each system and decision maker risk attitude. Results indicate, within the limitation of the study, two cover crop regimes possess a high degree of dominance over conventional systems. Determination of the dominant regime depends upon the risk attitude of a specific decision maker. This research suggests cover crop production systems may be feasible alternatives to conventional practices.
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July, 1993

ON MODELING SYSTEMS OF CROP ACREAGE DEMANDS

By: Coyle, Barry T.
This article presents an alternative approach to the specification of systems of crop acreage responses. Derived demands for acreages of individual crops are specified as conditional on total crop acreage, and related separability and dynamic specifications help to reduce the effects of multicollinearity in the system. A simple econometric model of crop acreage demands for Western Canada illustrates the methodology.
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