Volume 26, Issue 1, July 2001

July, 2001

COMPETITIVE BIDDING ON IMPORT TENDERS: THE CASE OF MINOR OILSEEDS

By: Wilson, William W.; Diersen, Matthew A.
A common and noteworthy application of auctions and bidding is that of tendering for imports, used for both price determination and the allocation of purchases among sellers. In this study we develop a model to evaluate bidding strategies and competition and apply it to Egyptian oilseeds imports. Generally, bids could be explained with a relatively high degree of confidence using accessible data. In addition, there appear to be groups of bidders characterized by differences in their bid functions. These statistical results were used to determine optimal bids and evaluate the effects of several critical variables. The results are particularly interesting for understanding sellers' bidding strategies and competition among rivals, as well as impacts of specific variables on optimal bids and payoffs to sellers.
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July, 2001

REPRESENTATIONS OF MULTI-ATTRIBUTE GRAIN QUALITY

By: DeVuyst, Eric A.; Johnson, D. Demcey; Nganje, William E.
Grain quality is typically measured via several attributes. As these attributes vary across shipments and time, grain quality can be described using multivariate probability or frequency distributions. These distributions are important in modeling blending opportunities inherent in various grain shipments. For computational reasons, it is usually necessary to represent these distributions with a small set of discrete points and probabilities. In this analysis, we suggest a representation method based on Gaussian quadrature. This approach maintains the blending opportunities available by preserving moments of the distribution. The Gaussian quadrature method is compared to a more commonly used representation in a barley blending model.
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July, 2001

FEEDER CATTLE PRICE SLIDES

By: Brorsen, B. Wade; Coulibaly, Nouhoun; Richter, Francisca G.-C.; Bailey, DeeVon
A theoretical model is developed to explain the economics of determining price slides for feeder cattle. The contract is viewed as a dynamic game with continuous strategies where the buyer and seller are the players. The model provides a solution for the price slide that guarantees an unbiased estimate of cattle weight. An empirical model using Superior Livestock Auction (SLA) data shows price slides used are smaller than those needed to cause the producer to give unbiased estimates of weight. Consistent with the model's predictions, producers slightly underestimate cattle weights.
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July, 2001

EXPORT SUBSIDIES AND PROFIT-SHIFTING IN VERTICAL MARKETS

By: Sheldon, Ian M.; Pick, Daniel H.; McCorriston, Steve
This study examines the interaction between export subsidies and profit-shifting in a vertical production system consisting of agricultural commodity production, and intermediate and final good processing, where the latter two stages may be characterized by imperfect competition. Using a model with general functional forms for demand, comparative statics indicate that an export subsidy to an unprocessed agricultural commodity, under certain circumstances, can have greater profit-shifting effects at the final processing stage compared to an export subsidy targeted at the final processed good.
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July, 2001

AN ECONOMIC ANALYSIS OF CORN YIELD, CORN PROFITABILITY, AND RISK AT THE EDGE OF THE CORN BELT

By: Chavas, Jean-Paul; Kim, Kwansoo; Lauer, Joseph G.; Klemme, Richard M.; Bland, William L.
This study investigates the recent evolution of corn yield, with a special focus on the tradeoff between corn profitability and risk. The analysis relies on time-series data from Wisconsin experimental farms at the edge of the Corn Belt. An econometric model of corn yield, corn grain moisture, and corn profitability is specified. Both conditional means and conditional variances are estimated for different sites in Wisconsin. The empirical analysis shows the changes in corn yield and profit over time and across space. The evidence suggests that yield trends are due mostly to technical progress, with smaller effects generated by climate change. On average, corn yield and profitability have improved faster in northern Wisconsin than in the Corn Belt. However, risk has also increased faster. Results show that the choice of corn hybrid maturity makes it easier to manage risk in the Corn Belt than in northern Wisconsin.
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July, 2001

ASSESSING FARMERS’ ATTITUDES TOWARD RISK USING THE “CLOSING-IN” METHOD

By: Bard, Sharon K.; Barry, Peter J.
The 1996 Farm Bill and low commodity prices have regenerated interest in the impact of risk and farmers' risk attitudes on production agriculture. Previous research has used expected utility theory (EUT) and direct elicitation of utility functions (DEU) for eliciting risk attitudes. To overcome the criticism of EUT and DEU, a recently developed technique called the "closing in" method is adapted for eliciting farmers' risk attitudes. This method is applied to Illinois farmers by using a computerized decision procedure, and is validated by comparing the results to the farmers' self-assessment of their risk attitudes and score to a risk attitudinal scale.
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July, 2001

THE FUTURE OF TEACHING UNDERGRADUATE AGRICULTURAL ECONOMICS: LIFELONG LEARNING IN AN ERA OF RAPID TECHNOLOGICAL CHANGE

By: Barkley, Andrew P.
The need for institutions of higher education to teach students of all ages how to think, synthesize ideas, and assimilate new information has become crucial in the information age. Analytical ability is increasingly important, not only for traditional university clientele of young adult residential learners, but also for productive individuals throughout their lives. Agricultural economics teachers must invest in the acquisition of new skills and knowledge, including a willingness to change traditional teaching structures and institutions, to take full advantage of the huge opportunities and challenges of the massive changes in technology and the economy. This paper considers how well teaching programs in agricultural economics enhance student learning.
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July, 2001

DEVELOPING AND PRICING PRECIPITATION INSURANCE

By: Martin, Steven W.; Barnett, Barry J.; Coble, Keith H.
Production agriculture and agribusiness are exposed to many weather-related risks. Recent years have seen the emergence of an increased interest in weather-based derivatives as mechanisms for sharing risks due to weather phenomena. In this study, a unique precipitation derivative is proposed that allows the purchaser to specify the parameters of the idemnity function. Pricing methods are presented in the context of a cotton harvest example from Mississippi. Our findings show a potential for weather derivatives to serve niche markets within U.S. agriculture.
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July, 2001

BT CORN AND INSECT RESISTANCE: AN ECONOMIC ASSESSMENT OF REFUGES

By: Hurley, Terrance M.; Babcock, Bruce A.; Hellmich, Richard L.
Genetically engineered crops offer farmers a new option for controlling pests. The high efficacy of these pesticidal crops, combined with the potential for widespread adoption, has raised concerns that pest resistance may prematurely diminish their value. In response to these concerns, the Environmental Protection Agency requires resistance management plans. Current resistance management plans rely on a high-dose refuge strategy. This analysis extends the current framework for evaluating high-dose refuge strategies to include a measure of agricultural productivity and conventional pesticide use. The economic tradeoff relative to agricultural productivity, conventional pesticide use, and pest resistance is assessed when Bt corn is planted to control the European corn borer.
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July, 2001

MEASURING CONSUMER PREFERENCES FOR ECOLABELED SEAFOOD: AN INTERNATIONAL COMPARISON

By: Johnston, Robert J.; Roheim, Cathy A.; Donath, Holger; Asche, Frank
An analysis of consumer preferences for seafood labeled with information about environmental production attributes is introduced into the food labeling literature. International seafood ecolabeling programs have proposed to create market-based incentives for fisheries managers to promote sustainable fisheries. We investigate differences in consumer preferences for ecolabeled seafood across the United States and Norway. Using a contingent-choice telephone survey of random households in each nation, a wide range of factors is found to influence consumers' likelihood of purchasing ecolabeled seafood. Consumer preferences differ by price premium, species, consumer group, and certifying agency. The effect of these factors often differs between the United States and Norway, suggesting heterogeneity in international reactions to seafood ecolabels.
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July, 2001

INFORMATION QUALITY, TECHNOLOGY DEPRECIATION, AND BT COTTON ADOPTION IN THE SOUTHEAST

By: Marra, Michele C.; Hubbell, Bryan J.; Carlson, Gerald A.
In 1996, Bt cotton became one of the first genetically engineered crops to be available commercially. This study focuses on the various sources and quality of information about Bt cotton profitability available to farmers in the Southeast and assesses the relative importance of such information in the farmers' adoption decisions. A model of the individual decision to adopt is developed to incorporate two recent theories of the role of information quality (the "effective information" hypothesis and the "popularity" hypothesis) as well as the effect of current technology depreciation. The data show some support for all three factors as determinants of adoption.
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July, 2001

SEQUENTIAL STOCHASTIC PRODUCTION DECISIONS FOR A PERENNIAL CROP: THE YIELD/QUALITY TRADEOFF FOR ALFALFA HAY

By: Blank, Steven C.; Orloff, Steve B.; Putnam, Daniel H.
The "optimal cutting schedule" for alfalfa hay is described as a function of the trade-off between rising yield and falling quality of alfalfa over time and the local market prices being offered for different qualities of hay during the harvest season. Field test results quantify the yield/quality tradeoff for a California case study. A general decision rule is then derived to assist growers in making cutting decisions during a season. Finally, the optimal cutting schedule is shown to be the sum of sequential decisions for cuttings throughout the harvest season, with no schedule being best a priori.
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July, 2001

ALTERNATIVE CALIBRATION AND AUCTION INSTITUTIONS FOR PREDICTING CONSUMER WILLINGESS TO PAY FOR NONGENETICALLY MODIFIED CORN CHIPS

By: Lusk, Jayson L.; Daniel, M. Scott; Mark, Darrell R.; Lusk, Christine L.
This study explores two important issues in experimental economics: calibration and auction institution. Consumer willingness-to-pay bids for corn chips made with non-genetically modified ingredients are elicited in first- and second-price auctions. Results suggest that responses to scale-differential questions, elicited in a survey, accurately predicted consumer willingness-to-pay bids. While the second-price auction induced a greater percentage of marginal bidders to offer a positive bid compared to the first-price auction, average bid levels in the first- and second-price auctions were not statistically different from one other. In a small and unrepresentative sample, 70% of student participants were unwilling to pay to exchange a bag of chips made from genetically modified ingredients for a bag of chips made from nongenetically modified ingredients. However, 20% of respondents were willing to pay at least $0.25/oz. for the exchange.
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July, 2001

SEQUENTIAL INVESTMENT IN SITE-SPECIFIC CROP MANAGEMENT UNDER OUTPUT PRICE UNCERTAINTY

By: Isik, Murat; Khanna, Madhu; Winter-Nelson, Alex
An option-value model is developed to analyze the impacts of output price uncertainty, high sunk costs of adoption, and site-specific conditions on the optimal timing of adoption of two interrelated site-specific technologies, soil testing and variable rate technology (VRT). The model incorporates the potential for adopting these two technologies jointly or sequentially. The implications of the pattern of adoption for nitrogen pollution and for the design of a cost-share subsidy policy to accelerate the adoption of these technologies to reduce nitrogen pollution are also analyzed. Ignoring the potential for sequential adoption would tend to underpredict the adoption so soil testing and overpredict the adoption of VRT. Cost-share subsidies to induce accelerated adoption of VRT would be most effective at reducing nitrogen pollution if targeted toward fields with relatively high spatial variability in soil quality or soil fertility, and either low average soil quality or low average soil fertility.
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July, 2001

CONVENIENCE, ACCESSIBILITY, AND THE DEMAND FOR FAST FOOD

By: Jekanowski, Mark D.; Binkley, James K.; Eales, James S.
This study explores the growth in demand for fast food. A distinguishing characteristic of fast food is its convenience; in today's pervasive marketplace, consumers need not travel far to find a fast food outlet. This greater availability translates into a decrease in the full price of obtaining a meal, which contributes to greater consumption. Market-level data are used to estimate demand equations in two time periods, incorporating changes in availability as well as prices, income, and various demographic characteristics. Our findings show that greater availability has led to increased consumption. Failure to account for these types of marketplace changes could lead to incorrect inferences regarding the factors responsible for the industry growth.
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July, 2001

WHOLESALE DEMAND FOR USDA QUALITY GRADED BOXED BEEF AND EFFECTS OF SEASONALITY

By: Lusk, Jayson L.; Marsh, Thomas L.; Schroeder, Ted C.; Fox, John A.
This study estimates wholesale demand for pork, chicken, and quality differentiated beef. We estimate meat retailer own- and cross-price demand elasticities for USDA Choice and Select boxed beef. Results indicate that meat retailers have more elastic demand for lower quality graded beef. Retail beef price has a strong positive relationship with Choice and Select boxed beef demand, and a strong negative relationship with wholesale pork and chicken demand. Seasonal analysis reveals demand for both beef quality grades becomes highly price inelastic during the summer months. The two beef quality grades are substitutes during the winter; however, Select beef is not a substitute for Choice beef in the spring and summer.
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July, 2001

THE FOOD STAMP BENEFIT FORMULA: IMPLICATIONS FOR EMPIRICAL RESEARCH ON FOOD DEMAND

By: Wilde, Parke E.
To understand how food stamps affect food spending, nonexperimental research typically requires some source of independent variation in food stamp benefits. Three promising sources are examined: (a) variation in household size, (b) variation in deductions from gross income, and (c) receipt of minimum or maximum food stamp benefits. Based on results of a linear regression model with nationally representative data, 90% of the total variation in food stamp benefits is explained by gross cash income, and household size variables alone. This finding raises concern about popular regression approaches to studying the Food Stamp Program.
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July, 2001

FOOD MANUFACTURING COOPERATIVES’ OVERSEAS BUSINESS PORTFOLIOS

By: Buccola, Steven T.; Durham, Catherine A.; Gopinath, Munisamy; Henderson, Erin
Firms selling products overseas may do so in a wide variety of ways, such a s through trading companies, foreign distributors, brokers, direct sales, license arrangements, and foreign direct investment. Many firms employ a portfolio of arrangements for each of their products. Using a share equation model, we examine the factors influencing food processing cooperatives' foreign business arrangements. Particularly important are the cooperative's financial resources and structure, risk exposure and risk preferences, information resources, and product types. Compared to investor-owned firms, we find that cooperatives have distinct disadvantages in investing or selling directly abroad, although the disadvantages are tempered by some equalizing considerations.
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