Volume 19, Issue 2, December 1994

December, 1994

END MATERIALS

This section includes: Invited Papers Abstracts; Editor's Report for 1993-94; Reviewers, July 1993-June 1994; WAEA 1993 Award Winners; Past Presidents, Western Agricultural Economics Association 1927-94; Past Editors; JARE Author Index, Volumes 17-19, 1992-94; Guidelines for Submitting Manuscripts; Membership Information; Back Cover
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December, 1994

PREMIUM RATE DETERMINATION IN THE FEDERAL CROP INSURANCE PROGRAM: WHAT DO AVERAGES HAVE TO SAY ABOUT RISK?

By: Goodwin, Barry K.
This article reviews actuarial procedures used to calculate premium rates in the federal crop insurance program. Average yields are used as an important indicator of risk under current rating practices. The strength and validity of this relationship is examined using historical yield data drawn from a large sample of Kansas farms. The results indicate that assumed relationships between average yields and yield variation are tenuous and imply that rating procedures that rely on average yields may induce adverse selection.
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December, 1994

NUTRITION INFORMATION AND HOUSEHOLD DIETARY FAT INTAKE

By: Gould, Brian W.; Lin, Huei Chin
An endogenous switching regression model is used to examine how meal planner health knowledge affects dietary fat intake. Ethnicity, income, meal planner age, being on a low-fat diet, and other health awareness behaviors had significant effects on health knowledge. After controlling for differences in household and meal planner characteristics, intake of total and saturated fat was found to depend on health knowledge status.
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December, 1994

PRICE-BAND STABILIZATION PROGRAMS AND RISK: AN APPLICATION TO THE U.S. CORN MARKET

By: Holt, Matthew T.
The impacts of introducing a partial price stabilization scheme in the U.S. corn market are investigated by using a modified version of the bounded price variation model. Specifically, a model is developed and estimated that includes rational expectations of the first three central moments of the (truncated) equilibrium price distribution. The estimated model is used to stimulate market equilibrium effects of introducing upper and lower price limits through a tax-subsidy scheme. The results show that corn producers are downside risk averse, and that market feedback effects of price stabilization can, at times, be more important than direct effects.
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December, 1994

ECONOMIC EFFECTS OF U.S. DAIRY PROGRAMS

By: Helmberger, Peter G.; Chen, Yu-Hui
Based on econometric analysis, this article estimates effects of terminating the milk order system and milk price support, singly and together, over the period 1966-90. Since 1980, milk orders have raised the national blend price by 1-2%; price support has raised the blend price to well above the market clearing price, by over 21% in 1983. Short- and long-run benefits and costs are estimated for various policy options under 1990 conditions.
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December, 1994

THE VALUE OF INFORMATION IN HERBICIDE DECISION MAKING FOR WEED CONTROL IN AUSTRALIAN WHEAT CROPS

By: Pannell, David J.
Most weed control decisions are made with the benefit of some information about weather conditions and actual weed densities. This study is an investigation of the value of adjusting weed control decisions in response to these types of information. For a specific example, it is found that the expected value of information can reach 15% of expected gross margin. The value of information about yield prospects is higher than that for weed density. The value of information is markedly affected by the degree of risk aversion and the type of decision rule adopted. Use of information reduces the expected level of herbicide usage.
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December, 1994

THE EFFECTS OF INCLUDING BANKRUPTCY ON DYNAMIC INVESTMENT DECISIONS

By: Novak, Frank S.; Schnitkey, Gary D.
This article evaluates the effects of including the costs of bankruptcy in a dynamic model of off-farm investment decisions using a stochastic dynamic programming (SDP) model which incorporates the stochastic dynamic nature of investment returns and the interrelationships between financial structure and investment decisions. Our results suggest that in the presence of bankruptcy, optimal investment decisions are affected by financial structure and financial market conditions. Ignoring bankruptcy costs in determining investment decisions results in a high probability of bankruptcy.
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December, 1994

DETERMINANTS AND IMPLICATION OF POST-CRP LAND USE DECISIONS

By: Skaggs, Rhonda K.; Kirksey, R.E.; Harper, Wilmer M.
Conservation Reserve Program (CRP) land retirement contracts will begin to expire in late 1995. A multinomial logit model is used to identify characteristics influencing New Mexico CRP participant post-CRP land use plans. Results indicate post-CRP land uses intentions will vary with attributes reflecting characteristics of the land enrolled, socioeconomic variables, and participant attitudes. Results point to a CRP-facilitated retreat from crop production to future ranching by many producers. The analysis suggests future changes in the structure and character of southern Great Plains agriculture and surrounding communities.
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December, 1994

CATTLE FEEDER BEHAVIOR AND FEEDER CATTLE PLACEMENTS

By: Kastens, Terry L.; Schroeder, Ted C.
Cattle feeders appear irrational when they place cattle on feed when projected profit is negative. Long futures positions appear to offer superior returns to cattle feeding investment. Cattle feeder behavior suggests that they believe a downward bias in live cattle futures persists and that cattle feeders use different expectations than the live cattle futures market price when making placement decisions. This study examines feeder cattle placement determinants, comparing performance of expected hedgeable profit with past actual profit in explaining feeder cattle placements. Past actual profit is a more important placement determinant than expected profit based upon the live cattle futures market, even though hedgeable profit provides a superior forecast of future profit. In addition, potential deterrents to cattle feeders' use of futures as a substitute for cattle ownership are discussed.
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December, 1994

INTERVENTIONS AND PRODUCTION SECTOR WASTE IN LDC AGRICULTURE

By: Fulginiti, Lilyan E.; Perrin, Richard K.
Recent studies have revealed that less developed countries (LDCs) have been taxing their agricultural sectors at rates of 40-50%. This study uses quantity-based general equilibrium measures of deadweight loss to evaluate the cost of these distortions in 18 of these countries. The Allais-Debreu loss measures indicate that from 7-16% of either output or of the agricultural resource base has been wasted due to the associated misallocation of agricultural inputs across these countries.
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December, 1994

WHAT DO WE KNOW ABOUT DECISION MAKING UNDER RISK AND WHERE DO WE GO FROM HERE?

By: Buschena, David E.; Zilberman, David
This article reviews two major approached used in the past for risk analysis - the expected utility approach and the use of safety rules and endeavors to reconcile their applicability and use in light of the recent nonexpected utility risk literature and working using the mean-Gini coefficient for risk analysis. This leads to the identification of several "reduced form" hypotheses that hold under a variety of theoretical structures and to a discussion of some empirical evidence regarding these hypotheses. The major lesson of recent research of individual behavior under risk is that it is not always consistent with the expected utility approach; in short, there is no generic model for evaluating behavior under risk.
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December, 1994

TWO-STAGE UTILITY MAXIMIZATION AND IMPORT DEMAND SYSTEMS REVISITED: LIMITATIONS AND AN ALTERNATIVE

By: Davis, George C.; Jensen, Kimberly L.
Two-stage utility maximization theory has been widely used in the literature to estimate import demand for agricultural commodities that are often inputs. This article examines the overlooked conceptual and empirical limitations of applying two-stage utility maximization theory to model the demand for imported commodities that are inputs. A discussion is presented about how the underutilized theory of two-stage profit maximization overcomes these limitations. Also discussed are the conditions under which errors illustration of the two-stage profit maximization procedure is provided.
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December, 1994

THE ECONOMICS OF CLEANING WINTER WHEAT FOR EXPORT: AN EVALUATION OF PROPOSED FEDERAL “CLEAN GRAIN” STANDARDS

By: Adam, Brian D.; Kenkel, Philip L.; Anderson, Kim B.
Buyer complaints about poor quality U.S. wheat have led to proposals to enforce minimum dockage standards for exports. An economic-engineering approach is used to evaluate costs and benefits of cleaning wheat in order to meet these standards for 13 possible cleaning configurations. These results are used in an optimization framework to estimate costs and benefits of cleaning all U.S. export wheat. The estimates indicate that cleaning U.S. export winter wheat to .35% dockage would cost an average of 1 cent/bu., requiring an initial capital investment of $28 million. Value of wheat lost in cleaning is a significant cost that previously has been overlooked.
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December, 1994

YIELD RESPONSE AND PRODUCTION RISK: AN ANALYSIS OF INTEGRATED PEST MANAGEMENT IN COTTON

By: Hurd, Brian H.
Production uncertainty is commonly believed to be an impediment to the adoption of less pesticide-intensive methods in agriculture such as integrated pest management (IPM). To investigate the effects of pest control inputs on yields and yield variability, data from a cross-section of San Joaquin Valley cotton producers were analyzed in a heteroskedastic production model. The results suggest that yields are increasing with soil quality, crop rotation, frequency of field monitoring, and the use of independent pest control advisors. Yield variability was not found to be significantly affected by production inputs, including pesticides and IPM practices with the exception of frequent contact with extension farm advisors which was found to contribute to reduced yield variability.
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December, 1994

JAPANESE MEAT IMPORT DEMAND ESTIMATION WITH THE SOURCE DIFFERENTIATED AIDS MODEL

By: Yang, Seung-Ryong; Koo, Won W.
A source differentiated AIDS model is specified to estimate Japanese meat import demand. Block separability and product aggregation are rejected at conventional levels of significance. The model with the block substitutability restriction explains more than 95% of data variation. The empirical results indicate that the U.S. has the largest potential for beef exports to Japan. Taiwan is in a strong position in the pork market, and Thailand and China are strong in the poultry market. The U.S. competes with Canada and Taiwan in the pork market, but the competition between Taiwan and European countries is the strongest in the market. The U.S. competes with Thailand in the poultry market, where the U.S. is the most vulnerable.
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December, 1994

THE CYCLICAL NATURE OF THE U.S. SHEEP INDUSTRY

By: Van Tassell, Larry W.; Whipple, Glen D.
The cyclical nature of numbers and prices of sheep and lambs was examined from 1924 through 1993. Tests for structural change also were conducted utilizing the minimization of Akaike's information criterion (MAIC). Results indicate that cyclical length in both stock sheep numbers and lamb prices has decreased over time, with a current 10- and 27-year cycle in stock sheep numbers and nine- and 27-year cycle lamb prices. Structural changes occurred in 1951 and 1968 for stock sheep number and in 1952 and 1972 for lamb prices.
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