Volume 30, Issue 3, December 2005

December, 2005

Asymmetric Willingness-to-Pay Distributions for Livestock Manure

By: Norwood, F. Bailey; Luter, Ryan L.; Massey, Raymond E.
The Environmental Protection Agency's new Concentrated Animal Feeding Operations (CAFO) regulations are forcing some farms to export livestock manure to off-farm acres. The regulation compliance cost depends on the willingness of neighboring crop producers to accept or pay for the manure. This study estimates a manure willingness-to-pay distribution for crop producers using a contingent valuation mail survey. A flexible parametric distribution is borrowed from the crop yield literature, which shows that manure willingness to pay is left-skewed. Most crop producers in our sample will pay a positive price close to the savings in commercial fertilizer, but approximately 25% require a payment before accepting manure.
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December, 2005

Price Discovery and Pricing Choice Under Divergent Supply Scenarios in an Experimental Market for Fed Cattle

By: Ward, Clement E.
Previous research has not addressed the impacts of alternative supply conditions on price discovery and pricing choice. This study estimated models with data from an experimental market, the Fed Cattle Market Simulator, encompassing live weight, dressed weight, and grid pricing under two alternative supply scenarios. Significance of variables explaining transaction price variation and pricing choice differed between the two supply periods. Overall results were close to expectations. Higher quality cattle marketed with a grid brought higher prices in both supply periods. Having lower quality cattle in either supply period increased the probability of cattle being marketed (purchased) on a live weight basis.
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December, 2005

Labor-Force Heterogeneity as a Source of Agglomeration Economies in an Empirical Analysis of County-Level Determinants of Food Plant Entry

By: Davis, David E.; Schluter, Gerald E.
Results of this study show that a heterogeneous labor force serves to attract new food manufacturing investment. We conduct analysis for SIC 20, Food and Kindred Product Manufacturing, and disaggregate analysis on all nine three-digit SIC food industries. Heterogeneity variables are a significant factor in nearly all specifications. We also examine which factors create the greatest increases in the expected number of new establishments. Areas with a high degree of labor heterogeneity are found to have large advantages. Labor heterogeneity is among the most important factors attracting food manufacturing to urban areas over rural areas.
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December, 2005

On Production Function Estimation with Selectivity and Risk Considerations

By: Koundouri, Phoebe; Nauges, Celine
In the estimation of production functions, ignoring risk considerations can cause inefficient estimates, while biased parameter estimates arise in the presence of sample selection. In the presence of uncertainty and selection bias, the latter introduced by the endogeneity of qualitative characteristics of inputs in crop choice, we show that correcting for risk considerations (a la Just and Pope, 1978, 1979) but not selection bias, can produce incorrect inferences in terms of risk behavior. The arguments raised in this study have estimation and policy implications for stochastic production analysis applied to all goods whose qualitative characteristics can affect sample selection.
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December, 2005

End Materials

This section includes: JARE Editor's Report; Reviewers November 2004-October 2005; WAEA 2004 Award Winners; WAEA Past Presidents 1927-2005; Past Editors: Western Journal of Agricultural Economics, 1977-1991, Journal of Agricultural and Resource Economics, 1992-2003; Minutes of 2005 WAEA Executive Committee Meeting;
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December, 2005

After the Bubble: The Survival and Ownership of Internet Marketplaces for Farmers and Agribusiness

By: Wheatley, W. Parker; Buhr, Brian L.
This paper presents a theory of how industry structure and beliefs about Internet marketplace use have driven choice and ownership of marketplaces. The theory's predictions suggest that surviving Internet marketplaces will be those with strong historical linkages in an industry and those owned by or affiliated with major commodity buyers. Comparisons of these predictions with actual outcomes provide validation of the theory. Where predictions differ from results, observations are made as to the nature of the deviations.
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December, 2005

Market Signals Transmitted by Grid Pricing

By: Johnson, Heather C.; Ward, Clement E.
Grid pricing improves the flow of information to producers, but market signals sent by grids may not be clearly understood. This study uses a two-stage Coefficients of Separate Determination process, four sets of fed cattle carcass data, and sensitivity analyses to identify market signals sent by grid pricing. Weight sends a stronger market signal than carcass quality characteristics such as quality and yield grade. Although grids are shaping production, market signals indicate that lower quality carcasses are penalized more than higher quality carcasses are rewarded. Sensitivity analyses suggest changes in quality and yield grade discounts have the greatest impact on market signals.
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December, 2005

Trading Behavior in a Marginal Organized Market

By: Peterson, Hikaru Hanawa
As increasingly more transactions occur away from open markets, the so-called "thin" market issues arise. This paper analyzes unpublished transaction data from Egg Clearinghouse, Inc. (ECI), a marginal marketplace for eggs that trades 4% of all eggs (80% of eggs available for open trading). Results suggest that marginalized markets can serve as an inventory adjustment mechanism while maintaining the role of price discovery as a check for non-market prices. At ECI, most firms both buy and sell regardless of operational types, participation is balanced across all types of firms in the industry, and sellers in general yield to buyers' preferred terms of trade.
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December, 2005

Economic Principles for Saving the Cooperative Extension Service

By: Hoag, Dana L.
The Cooperative Extension Service is an outstanding success story for education, but a model whose value is now in question. I focus on economic principles that apply to the question, "Is it time to end Extension, and if not, how can it be saved?" Six principles are identified: public goods, competitive advantage, privatization, long-run sustainability, business practices, and political economy. There is cause to support Extension, but leadership is needed to establish a common direction and to implement changes. Strategic planning would be helpful to identify these changes and to make Extension's value known to clientele and policy makers. Includes biography of Dana L. Hoag.
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December, 2005

Price Effects from an Anticipated Meatpacking Plant Opening and Unexpected Plant Closing

By: Ward, Clement E.; Hornung, Jonathan T.
Livestock producers primarily, but policy makers also, have an interest in market effects from meatpacking plant closings and openings. This article presents results from a study to determine price impacts from an anticipated hog slaughtering plant opening and an unexpected fed cattle slaughtering plant closing. The estimated price effects for each plant event were modeled with price difference and partial adjustment models. The plant opening resulted in higher absolute and relative hog prices in the Provincial market where the plant was located. However, adverse price impacts from the fed cattle plant closing were less evident.
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December, 2005

The Demand for Food Away from Home: Do Other Preferences Compete with Our Desire to Eat Healthfully?

By: Stewart, Hayden; Blisard, Noel; Jolliffe, Dean; Bhuyan, Sanjib
Health-oriented government agencies have had limited success at encouraging Americans to eat a healthful diet. One reason may be that other preferences compete with our desire to eat healthfully. We explore the effect of consumer preferences on the demand for food away from home, including frequency of eating out and choice of outlet type. Preferences for convenience and ambience are found to influence behavior. Furthermore, omitting these variables from econometric models can bias the estimated effect of preferences for a healthful diet.
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December, 2005

Transaction Frequency and Hedging in Commodity Processing

By: Dahlgran, Roger A.
This study examines the effect of transaction frequency on profit and cash flow risk for firms that periodically purchase inputs, continuously transform inputs into outputs, and periodically sell output. Soybean-processing profit and cash flows are computed for unhedged, direct-hedged, and risk-minimizing-hedged processing with up to 52 transactions per year. Findings include: (a) higher transaction frequencies result in lower unhedged profit and cash flow risk and lower hedging effectiveness, (b) anticipatory hedging provides less risk protection than product-transformation hedging, (c) stabilizing cash flow stabilizes annual profits but the converse does not hold, and (d) hedging profits makes cash flow more variable.
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December, 2005

Income Earning Potential versus Consumptive Amenities in Determining Ranchland Values

By: Torell, L. Allen; Rimbey, Neil R.; Ramirez, Octavio A.; McCollum, Daniel W.
The relative importance of income earning potential versus consumptive values in setting ranchland prices is examined using a truncated hedonic model. The market value of New Mexico ranches is related to annual income earning potential and other ranch characteristics including ranch size, location, elevation, terrain, and the amount of deeded, public, and state trust land on the ranch. We found ranch income to be a statistically important determinant of land value, but yet a relatively small percentage of ranch value was explained by income earnings. Ranch location, scenic view, and the desirable lifestyle influenced ranch value more than ranch income.
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