Volume 27, Issue 1, July 2002

July, 2002

EXIT OF MEAT SLAUGHTER PLANTS DURING IMPLEMENTATION OF THE PR/HACCP REGULATIONS

By: Muth, Mary K.; Karns, Shawn A.; Wohlgenant, Michael K.; Anderson, Donald W.
Implementation of the Pathogen Reduction and Hazard Analysis and Critical Control Points (PR/HACCP) regulations has occurred across all U.S. meat and poultry plants. A probit model is estimated to determine which factors have affected the probability of red meat slaughter plant exit during implementation of the regulations. While controlling for plant-level, company-level, regional-level, and supply conditions that may affect the probability of plant exit, smaller plants are found to exhibit a much greater probability of exit than larger plants. Other factors affecting plant exit include plant age, market share relative to the degree of market concentration, regional entry rates, and state-level wage rates.
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July, 2002

MICRO VERSUS MACRO ACREAGE RESPONSE MODELS: DOES SITE-SPECIFIC INFORMATION MATTER?

By: Wu, JunJie; Adams, Richard M.
Because requisite micro data frequently are unavailable, it is common practice to use aggregate data to estimate economic relationships representing the behavior of individual agents. A substantial body of literature has examined conditions under which inferences between micro and aggregate specifications can be made. Less attention has been focused on the relative accuracy of predictions for each scale of model. In an empirical application, we compare the goodness-of-fit measures of eight sets of acreage response models, varying in aggregation from field- (micro-) level to regional- (macro-) level models. Results suggest aggregate models are superior to the micro model in predicting acreage response, even thought the micro models contain substantially more data on site-specific characteristics.
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July, 2002

THE ACCURACY OF PRODUCERS’ PROBABILITY BELIEFS: EVIDENCE AND IMPLICATIONS FOR INSURANCE VALUATION

By: Sherrick, Bruce J.
The accuracy of producers' subjective probability beliefs is examined through a survey of large cash-grain farmers in Illinois. Findings reveal that their subjective probability beliefs about important weather variables are systematically mis-calibrated. The nature and extent of differences between subjective probability beliefs and probabilities based on long-term historic weather data are shown empirically, and through fitted calibration functions. The economic significance of inaccurate subjective probability beliefs is established in the context of insurance valuation. The results demonstrate that significant errors in producers' risk assessments and insurance valuation arise as a consequence of producers' systematically inaccurate probability beliefs.
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July, 2002

STORAGE TECHNOLOGY AND THE ENVIRONMENT

By: Lichtenberg, Erik; Zilberman, David
A dynamic framework is presented for analyzing regulations affecting the use of spoilage-reducing inputs with potential negative environmental effects, such as pesticides, growth regulators, chemical preservatives, and irradiation. Such regulations change intertemporal consumption patterns as well as total output. Consumers may benefit from restrictions on storage technology, giving them a reason to support regulation even when it may not be warranted to correct environmental externalities. Static analyses do not take into account changes in intertemporal consumption, and thus may give misleading depictions of the effects of imposing new regulations. Implications of the framework for development and trade policy are discussed, as are extensions to cases of uncertainty and multiple time periods.
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July, 2002

A DYNAMIC EXERCISE IN REDUCING DEER-VEHICLE COLLISIONS: MANAGEMENT THROUGH VEHICLE MITIGATION TECHNIQUES AND HUNTING

By: Schwabe, Kurt A.; Schuhmann, Peter W.; Tonkovich, M.
The costs of deer-vehicle collisions (DVCs) nationwide are estimated to be in excess of $1 billion annually. In this study, factors contributing to the abundance of DVCs are identified and the potential effectiveness of various deer management strategies in reducing DVCs is investigated. The added benefits of such strategies are also evaluated in a bioeconomic context by comparing alternative outcomes achievable from implementing DVC mitigation techniques. Focusing on Ohio, results suggest potentially large economic gains exist from reducing DVCs, especially with strategies that combine both deer management schemes and DVC mitigation techniques.
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July, 2002

AGRICULTURE AS A MANAGED ECOSYSTEM: POLICY IMPLICATIONS

By: Antle, John M.; Capalbo, Susan Marie
One of the greatest challenges facing agriculture for the foreseeable future is to resolve conflicts caused by a growing competition for the services of the soil, water, and other natural resources on which agriculture depends-driven by growing demands for food, fiber, and for nonagricultural services these resources provide. To meet this challenge, research is needed which is integrated across the relevant sciences to better understand and predict the properties of agricultural production systems in all of the dimensions that have come to be represented by the concept of sustainability. If we were to achieve this capability to analyze agriculture as a managed ecosystem, it would be possible to move beyond the current regime of agricultural policies, driven largely by interest-group politics, toward science-based policies that recognize the tradeoffs associated with competing uses of natural resources.
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July, 2002

USDA PRODUCTION FORECASTS FOR PORK, BEEF, AND BROILERS: AN EVALUATION

By: Sanders, Dwight R.; Manfredo, Mark R.
One-step-ahead forecasts of quarterly beef, pork, and poultry production are examined and evaluated based on traditional criteria for optimality-efficiency and unbiasedness-as well as their performance versus a univariate time-series model. However, traditional regression methodology for evaluating forecasts is avoided due to interpretive issues. Instead, an empirical framework focusing on forecast errors in employed. Results suggest USDA forecasts are unbiased, but generally not efficient. That is, they do not fully incorporate the information contained in past forecasts. Moreover, USDA's predictions do not encompass all the information contained in forecasts generated by simple time-series models. Thus, practitioners who use the USDA forecasts may want to supplement them with time-series forecasts.
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July, 2002

MICROECONOMICS OF IRRIGATION WITH SALINE WATER

By: Kan, Iddo; Schwabe, Kurt A.; Knapp, Keith C.
Water management and reuse at the field level are analyzed under saline, limited drainage conditions. A function relating crop yield and deep percolation flows to applied water and salinity concentration is developed. This function fits simulated data well and is tractable for theoretical and empirical analysis of irrigation economics. With a single irrigation source, irrigation water for cotton and tomatoes at first increases and the decreases with salt concentration. Drain-water reuse is found to be an efficient strategy in events of high surface-water prices and costly solutions to drainage-related environmental problems. However, blending freshwater and drainage appears plausible only under surface water scarcity
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July, 2002

ENVIRONMENTAL REGULATION AND IMPLICATIONS FOR COMPETITIVENESS IN INTERNATIONAL PORK TRADE

By: Metcalfe, Mark R.
Environmental concerns linked to hog production are growing in the United States, Canada, and the European Union. New regulations controlling animal manure management are being imposed to address these concerns. This study determines that potential increases in U.S. and Canadian environmental regulation would have minimal effects on the relative competitiveness of pork exports for these countries. By contrast, more stringent European Union regulations have potential to significantly reduce EU competitiveness and contribute to the trend of increasing export market share for U.S. and Canadian pork products.
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July, 2002

OPTIMAL ADVERTISING WITH TRADED RAW AND FINAL GOODS: THE CASE OF VARIABLE PROPORTIONS TECHNOLOGY

By: Cranfield, John A.L.
An optimal advertising investment rule is derived for a vertically related, competitive market with traded final and raw goods and processing sector characterized by variable proportions technology and nonconstant returns to scale. An equilibrium displacement framework incorporating conditional factor demands is used to account for the elasticity of substitution between agricultural and nonagricultural inputs to the marketing channel. Simulation for the Canadian beef industry in the post-WTO environment demonstrates how optimal advertising intensity ranges between 0.05% and 0.22% of farm-level market revenue.
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July, 2002

ECONOMIC IMPACT OF ELECTRIC POWER INDUSTRY DEREGULATION ON THE STATE OF WASHINGTON: A GENERAL EQUILIBRIUM ANALYSIS

By: Coupal, Roger H.; Holland, David W.
Electric power markets are being deregulated nationwide with different impacts depending upon current policies and historical circumstances from region to region. The Pacific Northwest, with its historic abundance of low-cost hydropower and dependence on public power, with experience deregulation and conditioned by this legacy. This analysis focuses on the economic impacts of deregulation on the State of Washington. A 31-sector computable general equilibrium model is used to evaluate the impacts of Washington's economy. In a most likely scenario, electricity exports expand to high-priced regions. The impact on the state economy is a reduction in gross state product as a result of high electricity prices. Returns to capital increase, but returns to private capital and to labor decrease because much of the financial gain accrues to public power.
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July, 2002

EFFICIENT POLICIES FOR ENVIRONMENTAL PROTECTION: AN ECONOMETRIC ANALYSIS OF INCENTIVES FOR LAND CONVERSION AND RETENTION

By: Plantinga, Andrew J.; Ahn, Soeun
This study investigates the costs of subsidies for land retention and conversion, in addition to a policy that combines the incentives. A Markov model of forest and agricultural land use is estimated for the U.S. South Central region and used to simulate retention and conversion policies. Results suggest a conversion policy is less costly for increasing forest area, and a retention policy is less costly for increasing agricultural land area. The costs of separate subsidies can be up to 300% higher than the costs of combined incentives. However, when administrative costs are taken into account, conversion policies are likely to be less costly.
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July, 2002

VARIABLE-RATE NITROGEN APPLICATION UNDER UNCERTAINTY: IMPLICATIONS FOR PROFITABILITY AND NITROGEN USE

By: Isik, Murat; Khanna, Madhu
A micro-level model of farmer decision making is developed to examine the extent to which uncertainty about potential yields influences the value of site-specific technologies. The economic and environmental benefits of these technologies arise from two sources: information gathering and variable-rate nitrogen application is higher on fields with low average potential yields, high spatial variability, positively skewed potential yield distributions, responsive yield to nitrogen, and low uncertainty. Variable-rate application decreases nitrogen use by reducing the extent of overapplication. However, in the presence of uncertainty about potential yields, the incentives to overapply nitrogen irrespective of the method of application, uniform of variable rate, can reduce the economic and environmental benefits of site-specific technologies.
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July, 2002

IDENTIFYING THE EFFECTS OF GENERIC ADVERTISING ON THE HOUSEHOLD DEMAND FOR FLUID MILK AND CHEESE: A TWO-STEP PANEL DATA APPROACH

By: Schmit, Todd M.; Dong, Diansheng; Chung, Chanjin; Kaiser, Harry M.; Gould, Brian W.
A two-step model with sample selection is applied to panel data of U.S. households to estimate at-home demand for fluid milk and cheese, incorporating advertising expenditures. The model consistently accounts for sample-selection bias, unobserved household heterogeneity, and temporal correlation. Generic advertising programs for fluid milk and cheese were effective at increasing conditional purchase quantities, with very little effect on the probability of purchase. In contrast to aggregate studies, the long-run generic advertising elasticities for cheese were larger than for those of fluid milk. Advertising response varied considerably across sub-product classes, while branded advertising expenditures were largely insignificant.
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July, 2002

ESTIMATING A PROFIT FUNCTION IN THE PRESENCE OF INEFFICIENCY: AN APPLICATION TO RUSSIAN AGRICULTURE

By: Arnade, Carlos Anthony; Trueblood, Michael A.
The relationship among cost functions, distance functions, and technical inefficiency are utilized to show how technical inefficiency scores can be incorporated into the specification of a profit function and a related system of output supply and input demands. A method also is introduced for incorporating allocative efficiency scores into the same system. The theoretical and empirical approach requires fewer assumptions than those made in many studies. An illustrative example is provided for Russian agriculture for 1194-95, a period when significant technical and allocative inefficiency was known to exist. The results demonstrate inefficiency limits the supply response to prices, thus leading to lower estimates of output response compare to a traditional supply model in which efficiency is assumed.
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