2007

December, 2007

Finding Peace for Economists in Universities

By: Johnson, Marc A.
Evidence suggests that economists and agricultural economists have an unusual ability to create anxiety for university administration. Interviewers with university provosts and deans revealed support for faculty conducting relevant policy analysis, and discomfort with economists' participation in internal university decision making. The conflict is addressed by considering the nature of the decision environment, specification of decision variables, and the demand for policy evaluation to inform economists how they might contribute their expertise in a peaceful and effective manner. economists can help central administration, as policy makers, to establish systems of incentives, success metrics, and divisions of authority which match the locus of specialized knowledge.
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December, 2007

The Effect of Innovation on Agricultural and Agri-food Exports in OECD Countries

By: Ghazalian, Pascal L.; Furtan, William Hartley
This paper investigates the effect of innovation on primary agricultural and processed food product exports among the Organization for Economic Cooperation and Development (OECD) countries. A theoretical gravity equation that accounts for innovation is derived. The empirical exercise uses panel data sets covering 21 OECD countries for the period 1990-2003. The R&D capital stock is employed as a tangible way of measuring innovation. Empirical results show that R&D has enhanced exports in the primary agricultural sector. Meanwhile, the market expansion effect of R&D appears to be more than offset by the market power effect in the food processing sector, resulting in a decrease in exports. Also, evidence was found of a positive vertical channeling effect through which R&D in the primary agricultural sector increases exports of processed food products.
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December, 2007

A Choice Model with Systematic Structures in Decision Weights

By: Hu, Wuyang
This article introduces a discrete choice model which incorporates a nonlinear structural adjustment to the standard utility coefficients or decision weights. The proposed model is theoretically and empirically appealing when compared to several alternative approaches, and it can be estimated by conventional maximum likelihood. Application of the proposed model in a case study shows that it outperforms two competing approaches in model fit. Given its simplicity, this model is also capable of revealing consumers' heterogeneous choices. It is shown that based on consumers' different characteristics, their product choice and its welfare implications are also potentially different.
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December, 2007

Fast Food, Addiction, and Market Power

By: Richards, Timothy J.; Patterson, Paul M.; Hamilton, Stephen F.
Many attribute the rise in obesity since the early 1980's to the overconsumption of fast food. A dynamic model of a different-product industry equilibrium shows that a firm with market power will price below marginal cost in a steady-state equilibrium. A spatial hedonic pricing model is used to test whether fast food firms set prices in order to exploit their inherent addictiveness. The results show that firms price products dense in addictive nutrients below marginal cost, but price products high in nonaddictive nutrients higher than would be the case in perfect competition.
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December, 2007

Political Economy of the U.S. Cattle and Beef Industry: Innovation Adoption and Implications for the Future

By: Bailey, DeeVon
Market innovation and investment are key elements contributing to the health and success of any industry. However, U.S. cattle and beef interests appear to be resisting some of the market innovations that are occurring in their industry. This includes resisting innovations designed to provide more information and transparency in the marketing chain, such as additional traceability provided by animal identification systems. This paper discusses how institutions supporting the U.S. cattle and beef industry may be failing the industry in terms of helping it adjust to new market conditions, including failing to help the industry foster market innovation. Recommendations are given relating to the first steps of government and the land-grant system can take to change research and extension agendas relating to the beef industry.
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December, 2007

End Materials

This section includes: Abstracts of 2007 Western Agricultural Economics Association Invited and Selected Papers and Organized Symposia; JARE Editor's Report, December 2007; JARE Reviewers, April 1, 2006-October 10, 2007; WAEA 2006 Award Winners; WAEA Past Presidents; WJAE/JARE Past Editors
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December, 2007

Impacts of an Agricultural Development Program for Poor Coconut Producers in the Philippines: An Approach Using Panel Data and Propensity Score Matching Techniques

By: Rodriguez, Divina Gracia P.; Rejesus, Roderick M.; Aragon, Corazono T.
Using panel data econometric techniques and propensity score matching procedures, this study evaluates the impact of the MAUNLAD agricultural development program - a program designed to help alleviate poverty in Philippine coconut-producing communities. Our results indicate that the program had a significant positive mean effect on the recipients' total net farm income. Moreover, the probability of being in poverty is shown to decrease when a poor coconut producer participates in the program. The program's emphasis on training, intercropping, and livestock integration, as well as the more participatory approach taken, contributed to the strong positive impact of the program.
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December, 2007

A Source-Differentiated Analysis of U.S. Meat Demand

By: Mutondo, Joao E.; Henneberry, Shida Rastegari
The Rotterdam model is used to estimate U.S. source-differentiated meat demand. Price and expenditure elasticities indicate that U.S. grain-fed beef and U.S. pork have a competitive advantage in the U.S. beef and pork markets, respectively. Expenditure elasticities reveal that beef from Canada has the most to gain from an expansion in U.S. meat expenditures, followed by ROW pork, U.S. grain-fed beef, and U.S. poultry. BSE outbreaks in Canada and the United States are shown to have small impacts on meat demand, while seasonality is found to have a significant effect in determining U.S. meat consumption patterns.
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December, 2007

A Genetically Engineered Crop’s Impact on Pesticide Use: A Revealed-Preference Index Approach

By: Sydorovych, Olha; Marra, Michele C.
A revealed-preference-based method is proposed for assessment of the environmental and human health impact of genetically engineered (GE) crops. This method employs the relative pesticide toxicity information from farmers' pesticide choices combined with volume of pesticides as an alternative to previous methods which are based on volume only, on number of pesticide applications, or on stated preferences. The method is applied to estimate the changes in the impact of herbicides after environmental and health perspective. The results indicate that, on average, a reduction in herbicide human heath and environmental impacts occurs when farmers adopt RR soybean varieties.
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December, 2007

Hedges and Trees: Incorporating Fire Risk into Optimal Decisions in Forestry Using a No-Arbitrage Approach

By: Insley, Margaret; Lei, Manle
This paper investigates the impact of including the risk of fire in an optimal tree harvesting model at the stand level, assuming timber prices follow a mean-reverting stochastic process. The relevant partial differential equation is derived under different assumptions about hedging the risk of fire. The assumption that fire risk is fully diversifiable is contrasted with the assumption that it can be hedged with another asset. It is conjectured that the risk-neutral probability of fire exceeds the historical probability of fire, which will affect forest land valuation. An empirical example is presented for two different silvicultural regimes.
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August, 2007

Willingness to Pay (WTP) a Premium for Non-GM Foods versus Willingness to Accept (WTA) a Discount for GM Foods

By: Moon, Wanki; Balasubramanian, Siva K.; Rimal, Arbindra
In a survey of UK consumers, we elicited their willingness to accept (WTA) a discount for GM foods and willingness to pay (WTP) a premium for non-GM foods in order to assess their valuation on the non-GM characteristic in food products. Mean WTA is found to exceed mean WTP, suggesting the valuation of the non-GM characteristic reflects an endowment effect, imperfect substitutability between GM and non-GM foods, or both. Regression results show that perceived risks (benefits) associated with GM foods significantly increase (decrease) WTA and WTP estimates. Additional regression models using the difference between WTA and WTP as the dependent variable indicate that risk (benefit) perceptions increased (decreased) the discrepancy between WTA and WTP estimates. The role of risk perceptions in explaining this discrepancy is congruent with consumers' propensity toward loss aversion as predicted by the endowment effect hypothesis and prospect theory.
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August, 2007

Bargains or Rip-offs? Reference Price Effects in Conjoint Stated Demand

By: Hu, Wuyang
This study incorporates reference point effects into a stated choice survey of consumer demand for food with credence attributes. Parametric tests can be applied to the utility function to examine the existence of reference price effects. Results are consistent with prospect theory in that consumers exhibit strong and nonlinear reference price effects, with cheaper prices receiving less decision weight than higher prices. The underlying utility function is concave over lowered prices and convex over increased prices, with diminishing sensitivity in both domains. The study, however, did not find experience or consumers' attitudes to be significant in explaining reference price effects.
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August, 2007

Herbicide-Resistant Technology Price Effects on the Plant Density Decision for Ultra-Narrow-Row Cotton

By: Larson, James A.; Roberts, Roland K.; Gwathmey, C. Owen
Farmers are concerned about the high cost of planting herbicide-resistant cotton with the high plant densities recommended for ultra-narrow-row cotton. This study evaluated the effects on net revenues of four herbicide-resistant technology fee policies used since 1996 by Monsanto, the technology license holder. Results indicate that changes in the technology fee policy by Monsanto have raised the cost of planting herbicide-resistant cotton. As a consequence, farmers may have an incentive to switch from ultra-narrow-row cotton to wide-row cotton and to use a lower plant density when the technology fee is tied to the seeding rate.
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August, 2007

Economic Value of Selecting and Marketing Cattle by Leptin Genotype

By: Lusk, Jayson L.
Recent research has identified genetic diversity in the ability of animals to manufacture and recognize leptin, a protein that regulated appetite and weight. This paper determines the economic value of using information on leptin genotype to select and manage beef cattle. Results reveal that the economic value of using genotypic information to sort cattle by optimal endpoint is only about $2/head for steers and $1/head for heifers; however, the value of using genotypic information to optimally select and feed only certain genotypes is $23/head for steers and $28/head for heifers. The difference in per head profit between the best and worst performing genotype is over $28 on the date the cattle were actually marketed and increases to $60 if each genotype is optimally marketed.
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August, 2007

Estimating Agricultural Pollution Abatement Costs at the Plot Level Using Experimental Data: A Maximum Entropy Approach

By: Bond, Craig A.; Farzin, Y. Hossein
This paper uses a directional output distance function to estimate a multi-output production frontier for a sample of experimental plots grown for the Sustainable Agriculture Farming Systems project at the University of California, Davis. Cross-sectional technical efficiency indices are estimated that take into account two proxies for undesirable output: number of trips across a field as a proxy for air pollution and/or soil erosion, and pints of pesticides applied to account for potential leaching and/or health risks. Shadow price estimates based on marginal rates of transformation ranged from $8-$21 for trips, while shadow prices for pints of pesticides averaged $23-$27.
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August, 2007

Estimating the Effects of Exchange Rate Volatility on Export Volumes

By: Wang, Kai-Li; Barrett, Christopher B.
This paper takes a new empirical look at the long-standing question of the effect of exchange rate volatility on international trade flows by studying the case of Taiwan's exports to the United States from 1989-1998. In particular, we employ sectoral-level, monthly data and an innovative multivariate GARCH-M estimator with corrections for leptokurtic errors. This estimator allows for the possibility that traders' forward-looking contracting behavior might condition the way in which exchange rate movement and associated risk affect trade volumes. Change in importing country industrial production and change in the expected exchange rate are found to jointly drive the trade volumes. More strikingly, monthly exchange rate volatility affects agricultural trade flows, but not trade in other sectors. These results differ significantly from those obtained using more conventional and restrictive modeling assumptions.
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August, 2007

An Economic Analysis of Genetic Information: Leptin Genotyping in Fed Cattle

By: DeVuyst, Eric A.; Bullinger, Jared R.; Bauer, Marc L.; Berg, Paul T.; Larson, Daniel M.
A polymorphism in the leptin gene is associated with fat deposition. Since fed cattle are often priced on a grid that considers yield and quality grades, fat deposition is an important factor in profitability. Using data from 590 crossbred steers and heifers, we simulate carcass traits to various days-on-feed and compute the associated profit under three price grids. Results indicate that leptin genotype does affect value by as much as $48 per head but has little impact on days-on-feed. Given current commercial testing fees of $40-$50 per sample, genotyping of feeder cattle appears to break even at best.
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August, 2007

Do Government Payments Influence Farm Size and Survival?

By: Key, Nigel D.; Roberts, Michael J.
Using farm-level data from the 1987, 1992, and 1997 Census of Agriculture, this study estimates what effect agricultural payments have had on the likelihood of farm business survival and on farm size. The unique panel data set permits conditioning current farm size on past farm size, which removes much of the individual heterogeneity of farms that could be spuriously correlated with payment levels. Results indicate that between consecutive censuses, past per acre payments have a significant positive effect on farm business survival and a small yet significant influence on the size of continuing farms.
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