2004

December, 2004

Using Random Parameters to Account for Heterogeneous Preferences in Contingent Valuation of Public Open Space

By: Nahuelhual, Laura; Loureiro, Maria L.; Loomis, John B.
To test for preference heterogeneity in dichotomous choice contingent valuation responses, a random parameter logit (RPL) specification is used in this analysis. The RPL model confirms heterogeneity in respondents' preferences for protection of public open space, as reflected in statistically significant standard deviations of the normally distributed random parameters. Results show that while the majority of respondents indicate a positive willingness to pay (WTP), a minority of those surveyed report a negative WTP. Some of this variation in tastes remains even after individual characteristics and attitudinal variables are included in the model.
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December, 2004

Incorporating Environmental Impacts in the Measurement of Agricultural Productivity Growth

By: Ball, V. Eldon; Lovell, C.A. Knox; Luu, H.; Nehring, Richard F.
Agricultural production is known to have environmental impacts, both adverse and beneficial, and it is desirable to incorporate at least some of these impacts in an environmentally sensitive productivity index. In this paper, we construct indicators of water contamination from the use of agricultural chemicals. These environmental indicators are merged with data on marketed outputs and purchased inputs to form a state-by-year panel of relative levels of outputs and inputs, including environmental impacts. We do not have prices for these undesirable by products, since they are not marketed. Consequently, we calculate a series of Malmquist productivity indexes, which do not require price information. Our benchmark scenario is a conventional Malmquist productivity index based on marketed outputs and purchased inputs only. Our comparison scenarios consist of environmentally sensitive Malmquist productivity indexes that include indicators of risk to human health and to aquatic life from chronic exposure to pesticides. In addition, we derive a set of virtual prices of the undesirable by-products that can be used to calculate an environmentally sensitive Fisher index of productivity change.
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December, 2004

Model Selection for Discrete Dependent Variables: Better Statistics for Better Steaks

By: Norwood, F. Bailey; Lusk, Jayson L.; Brorsen, B. Wade
Little research has been conducted on evaluating out-of sample forecasts of discrete dependent variables. This study describes the large and small sample properties of two forecast evaluation techniques for discrete dependent variables: receiver-operator curves and out-of-sample log-likelihood functions. The methods are shown to provide identical model rankings in large samples and similar rankings in small samples. The likelihood function method is better at detecting forecast accuracy in small samples. By improving forecasts of fed cattle quality grades, the forecast evaluation methods are shown to increase cattle marketing revenues by $2.59/head.
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December, 2004

U.S. Consumers’ Willingness to Pay for Flavor and Tenderness in Steaks as Determined with an Experimental Auction

By: Feuz, Dillon M.; Umberger, Wendy J.; Calkins, Chris R.; Sitz, Bethany M.
In a study of beef quality, consumers tasted steak samples and participated in an experimental auction to determine their willingness to pay. Steaks differed in marbling, tenderness, country of origin, and aging method. Marbling and tenderness had statistically significant impacts on consumers' palatability ratings for steaks. Tenderness significantly impacted consumers' willingness-to pay values. There appear to be threshold levels of marbling and tenderness, below which consumers discount steaks. Steaks from Australia were rated lower for overall acceptability, and bids were lower than for the U.S. steak samples. Dry-aging methods negatively impacted taste panel ratings and bids.
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December, 2004

Pressures and Preferences Affecting Willingness to Apply Beef Manure on Crops in the Colorado High Plains

By: Hoag, Dana L.; Lacy, Michael G.; Davis, Jessica
Little is known about producers' willingness to use manure. Past studies have focused on substitutability for fertilizers. We surveyed crop producers in a cattle-dense region of the Colorado Plains about whether and why they apply manure, focusing on how pressures (like owning cattle) or preferences (pro and con) affect their adoption. Using logistic regression, findings show that pressure and preference (PS/PF) significantly affect adoption. A producer with high PS/PF was 10 times more likely to use manure than one with low PS/PF. Policy and decision makers can use such findings to inform education and policy aimed at increasing the land application of manure.
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December, 2004

Efficiency of Weather Derivatives as Primary Crop Insurance Instruments

By: Vedenov, Dmitry V.; Barnett, Barry J.
This study analyzes efficiency of weather derivatives as primary insurance instruments for six crop reporting districts that are among the largest producers of corn, cotton, and soybeans in the United States. Specific weather derivatives are constructed for each crop/district combination based on analysis of several econometric models. The performance of the designed weather derivatives is then analyzed both in- and out-of-sample. The primary findings suggest that the optimal structure of weather derivatives varies widely across crops and regions, as does the risk-reducing performance of the optimally designed weather derivatives. Further, optimal weather derivatives required rather complicated combinations of weather variables to achieve reasonable fits between weather and yield.
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December, 2004

Computer and Internet Use by Great Plains Farmers

By: Smith, Aaron D.; Goe, W. Richard; Kemey, Martin; Morrison Paul, Catherine J.
This study uses data from a 2001 survey of Great Plains farmers to explore the adoption, usage patterns, and perceived benefits of computers and the Internet. Adoption results suggest that exposure to the technology through college, outside employment, friends, and family is ultimately more influential than farmer age and farm size. Notably, about half of those who use the Internet for farm-related business report zero economic benefits from it. Whether a farmer perceives that the Internet generates economic benefits depends primarily on how long the farmer has used the Internet for farm business and for what purposes.
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December, 2004

Consumer Acceptance of Nutritionally Enhanced Genetically Modified Food: Relevance of Gene Transfer Technology

By: Onyango, Benjamin M.; Nayga, Rodolfo M., Jr.
This study examines consumer's willingness to consume different types of a nutritionally enhanced food product (i.e., breakfast cereal with calcium, omega fatty acids, or anti-oxidants) derived from grains genetically modified using two types of technologies: plant-to-plant gene transfer technology and animal-to plant gene transfer technology. Findings indicate a majority of the respondents are willing or somewhat willing to consume the three types of nutritionally enhanced genetically modified breakfast cereal, but are less willing if the genetically modified product is derived from animal-to-plant gene transfer technology than from plant-to-plant gene transfer technology. However, the results of the ordered probit models suggest there are groups of consumers who will not approve of the use of either type of gene transfer technology even with the presence of an enhanced nutritional benefit in the product.
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December, 2004

Cost-Responsiveness of Conservation Practice Adoption: A Revealed Preference Approach

By: Lichtenberg, Erik
While there is current interest in reorienting agricultural policy toward environmental and resource conservation goals, relatively little is known about the influence of cost on conservation adoption decisions or about how farmers combine multiple practices into an overall conservation package. Using farmer survey data combined with information on standard unit installation costs, this study estimates latent demand models for seven on-farm conservation practices. All of the practices exhibit downward-sloping demand. Topographical variations in adoption conform to expectations. The estimation results suggest that cost sharing should have substantial effects on the adoption of several practices, and indicate strong complementarity among others.
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December, 2004

Net Costs of Wildlife Damage on Private Lands

By: Rollins, Kimberly S.; Heigh, Lori; Kanetkar, Vinay
This study models net welfare impacts on producers who receive utility from on-farm wildlife populations that are not costlessly disposable. Wildlife damage levels where net benefits are zero indicate producers' maximum willingness to pay for on-farm wildlife. An empirical model is developed. Results for Ontario producers suggest the net welfare loss from damage is approximately half of the value of the yield loss for those with damage. In aggregate, however, on-farm wildlife generates net benefits to producers that outweigh costs by about 10-to-1. The distribution of net benefits is highly skewed across producers.
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December, 2004

The Voluntary Reporting System’s Ability to Provide Price Transparency in the Cash Market for Dressed Steers: Evidence from South Dakota

By: Fausti, Scott W.; Diersen, Matthew A.
The informational value of USDA's former voluntary price reporting system is investigated for dressed-weight slaughter steers sold by South Dakota producers. The ability of the former system to promote price transparency in the cash market is evaluated using state-level mandatory price reporting data collected from September 1999 to April 2001. The empirical framework examines the informational value of public price reports according to the criteria established in the market integration literature. The empirical results indicate that in the South Dakota cash market for dressed weight steers, the voluntary price reporting system fostered price transparency, and thus contributed to the price discovery process. Empirical evidence is also presented suggesting that strategic price reporting by market participants to influence the voluntary price reporting system was not detected during the period covered in this study.
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August, 2004

Conflicts over Water in the Upper Klamath Basin and the Potential Role for Market-Based Allocations

By: Jaeger, William K.
The curtailment of irrigation on the Klamath Reclamation Project in 2001 is estimated to have cost farmers more than $35 million. This study examines how alternative water allocations among irrigators in the Upper Klamath Basin could have lowered those costs. Per acre marginal water values vary by a factor of 20 due primarily to variations in soil productivity, with the highest productivity lands concentrated in the federal Project. A linear programming model estimates costs for alternative allocations. Findings indicate that compared to the 2001 allocation, costs could be reduced by 75% with a market-based approach.
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August, 2004

The Impact of Market Advisory Service Recommendations on Producers’ Marketing Decisions

By: Pennings, Joost M.E.; Isengildina, Olga; Irwin, Scott H.; Good, Darrel L.
A conceptual framework is developed which provides insight into the factors affecting the impact of market advisory service (MAS) recommendations on producer pricing decisions. Data from a survey of 656 U.S. producers reveal that the perceived performance of the MAS, the way in which MAS recommendations are delivered, as well as the match between MAS and producers' marketing philosophy, are important factors explaining the impact of MAS recommendations. Risk attitude does not affect the impact of MAS recommendations on producers' decisions, suggesting producers are more interested in the price-enhancing characteristics of MAS advice than in its risk-reducing features. Key words: market advisory services, ordered probit model, producers' marketing decisions
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August, 2004

Distributional Welfare Impacts of Public Spending: The Case of Urban versus National Parks

By: Feinerman, Eli; Fleischer, Aliza; Simhon, Avi
This study examines the optimal allocation of funds between national and urban parks. Since travel costs to national parks are significantly higher than to urban parks, poor households tend to visit the latter more frequently, whereas rich households favor the former. Therefore, allocating public funds to improving the quality of national parks at the expense of urban parks disproportionately benefits high income households. By developing a theoretical model and implementing it using Israeli data, findings indicate all households, except for the richest decile, prefer that the park authority divert a larger proportion of its budget from national to urban parks.
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August, 2004

Determining the Price-Responsiveness of Demands for Irrigation Water Deliveries versus Consumptive Use

By: Scheierling, Susanne M.; Young, Robert A.; Cardon, Grant E.
A water-crop simulation/mathematical programming model of irrigation water demand in northeastern Colorado is formulated to develop an original concept of derived demand for consumptive use of water. Conventional demand functions for water deliveries are also developed, and the effect of hypothetical price increases on both consumption and delivery are illustrated. Findings indicate that demand elasticity estimates are quite sensitive to model specification, and consumptive use demand tends to be significantly less price-responsive than delivery demand. Thus price incentives are likely to have only limited impacts on basin-wide water consumption and would not make much additional water available for emerging demands.
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August, 2004

The FAST Method: Estimating Unconditional Demand Elasticities for Processed Foods in the Presence of Fixed Effects

By: Bergtold, Jason S.; Akobundu, Eberechukwu; Peterson, Everett B.
This study estimates a set of unconditional own-price and expenditure elasticities across time for 49 processed food categories using scanner data and the FAST multi-stage demand system with fixed effects across time. Estimated own-price elasticities are generally much larger, in absolute terms, than previous estimates, while our expenditure elasticities are generally much lower. The use of disaggregated product groupings, scanner data, and the estimation of unconditional elasticities likely accounts for these differences. Results of the study suggest providing more disaggregate product-level demand elasticities could aid in the economic analysis of issues relating to industry competitiveness or the impact of public policy.
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