Volume 32, Issue 2, August 2007

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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August, 2007

Agricultural Subsidies and Forest Pressure in Malawi’s Miombo Woodlands

By: Fisher, Monica G.; Shively, Gerald E.
This paper examines impacts of an agricultural subsidy program on forest pressure in Malawi. Using household survey data, we measure the effect on forest product marketing and on forest clearing of Malawi's Starter Pack Scheme (SPS). Regression results show households receiving a free packet of hybrid maize seed and chemical fertilizer (a "starter pack") had lower levels of commercial forest extraction than nonrecipient households. In addition, no measurable effect of starter pack receipt is found on forest clearing decisions, suggesting the program raised agricultural output without encouraging agricultural expansion. Findings thus indicate potential modest improvement in forest condition due to the SPS.
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