Volume 19, Issue 1, July 1994

July, 1994

By: Fulginiti, Lilyan E.
Economics theorists for years have considered the possibility that the direction of technical change is altered by changes in relative prices. Prices also have been identified as one of the determinants of technical change through innovation. This article extends the theory of the firm to cover situations in which the firms' technology set is conditional on expected prices. The basic idea is to distinguish between "market prices," or the prices that guide the firm's choices subject to the technology that is in place, and "normal prices," the prices conditioning the choice of technology. A "generalized" price effect is obtained that included the traditional price effect as well as the technical change effect of price changes, and an example is presented.

July, 1994

By: Capps, Oral, Jr.; Tsai, Reyfong; Kirby, Raymond; Williams, Gary W.
The Rotterdam model is used to obtain estimates of demand parameters for meat products in Taiwan, South Korea, and Japan. Unlike most previous studies of demand systems, the model takes into account simultaneous-equation bias which arises due to the endogeneity of total expenditure. Beef, pork, and chicken are separable from marine products for each Pacific Rim country. However, demand elasticities for beef, pork, and chicken are different among the various Pacific Rim nations. One may not then use the elasticity estimates of a particular country and apply them to other Pacific Rim markets.

July, 1994

By: Jordan, Jeffrey L.; Elnagheeb, Abdelmoneim H.
This article compares willingness-to-pay (WTP) estimates from an actual survey using a checklist question regarding WTP for groundwater quality improvements to WTP estimates that would have been obtained had a single-bounded referendum (SBR) or a double-bounded referendum (DBR) question been asked. Results indicate differences among estimates from the three types of question formats. There was a loss of statistical efficiency of parameter and WTP estimates when moving from the checklist and DBR formats to the SBR format. WTP estimates from the SBR question were more sensitive to sample size and model specification than the others.

July, 1994

By: Starbird, S. Andrew
In California, acceptance sampling is used to monitor the quality of processing tomatoes delivered by growers to processors. A proposal to change the current quality assurance policy was recently put forth to reduce the growers' incentive to use pesticides. In this article we examine the effect of alternative quality assurance policies on profit-maximizing growers' demand for pesticides. The results indicate that the demand for pesticides is sensitive to changes in the quality assurance policy and that the proposed policy would reduce the optimal level of pesticide use on processing tomatoes. Disregarding the impacts of quality assurance policy may be the reason that the demand for pesticides has been underestimated so often in the past.

July, 1994

By: Driscoll, Paul J.
Taylor series-based flexible forms cannot be interpreted as Taylor series approximations unless all data used in estimation lie in a region of convergence. When flexible forms lose their Taylor series interpretation, elasticity estimates will be biased. When the flexible form is a translog, Rotterdam, or AIDS model, the region of convergence is shown to be the entire positive orthant. Regions of convergence associated with quadratic, Leontief, and any flexible form that does not employ logged arguments are smaller and may not encompass the entire data set. Implications for production and demand analyses and experimental design are discussed.

July, 1994

By: Eales, James S.
A new model of consumer preferences is introduced. It is appropriate for modeling perishable commodities which are produced with a lag, where it is reasonable to assume the market-level quantities are fixed by previously made production decisions. The inverse Lewbel system, as it is called, is a flexible nonlinear system of share equations, which nests two other inverse demand systems, the direct translog and the inverse AIDS. Thus, the inverse Lewbel may be employed to test whether these more restrictive preference structures are appropriate. In an application to quarterly U.S. meat consumption, the more restrictive structures are rejected.

July, 1994

By: Marra, Michele C.; Schurle, Bryan W.
A meta-analysis approach to prediction of farm level yield risk from county level yield series is applied to Kansas wheat yields. A nonlinear relationship between county level and farm level yield risk is found, which indicates that yield risk increases at an increasing rate as the number of acres in the risk measure decreases. County level yield variability should be adjusted upward by approximately .1% for each percent difference in county acreage and average farm acreage within the county. The meta-analysis approach is shown to be promising for the prediction of farm level yield risk when farm level information is difficult to obtain.

July, 1994

By: Dixon, Bruce L.; Hollinger, Steven E.; Garcia, Philip; Tirupattur, Viswanath
Projections of the impacts of climate change on agriculture require flexible and accurate yield response models. Typically, estimated yield response models have used fixed calendar intervals to measure weather variables and omitted observations on solar radiation, an essential determinant of crop yield. A corn yield response model for Illinois crop reporting districts is estimated using field data. Weather variables are time to crop growth stages to allow use of the model if climate change shifts dates of the crop growing season. Solar radiation is included. Results show this model is superior to conventionally specified models in explaining yield variation in Illinois corn.

July, 1994

By: Garcia, Philip; Adam, Brian D.; Hauser, Robert J.
This study provides additional evidence of the usefulness of mean-variance procedures in the presence of options which can truncate and skew the returns distribution. Using a simulation analysis, price hedging decisions are examined for hog producers when options are available. Mean-variance results are contrasted with optimal decisions based on negative exponential and Cox-Rubinstein utility functions over 56 ending price scenarios and two levels of risk aversion. The findings from our simulation, which considers discrete contracts, basis risk, lognormality in prices, transactions costs, and alternative utility specifications, affirm the usefulness of mean-variance framework.

July, 1994

By: Brown, Mark G.; Behr, Robert M.; Lee, Jonq-Ying
The question of endogeneity of conditional expenditures, as well as prices, in conditional demand equations for justices is examined. Both conditional expenditures and prices were found to be uncorrelated with the conditional demand errors, based on Wu-Hausman tests. Conditional demand error variance/covariance estimates and corresponding Slutsky coefficient estimates were approximately proportional, as predicted by the theory of rational random behavior, further supporting independence of conditional expenditures and conditional errors for juice demands.