Volume 33, Issue 1, April 2008

April, 2008

The Choice of Fish Species: An Experiment Measuring the Impact of Risk and Benefit Information

By: Marette, Stephan; Roosen, Jutta; Blanchemanche, Sandrine; Verger, Philippe
An experiment was conducted in France to evaluate the impact of health information on consumer’s choice. Fish have positive and negative health attributes, and we focus on fish species of diverging risk-benefit ratios. Successive messages revealing risks (methylmercury) and benefits (omega-3s), along with consumption recommendations, were delivered to experiment participants. Results show significant differences in reaction among participants depending on the sequencing order of information on risks and benefits. The results of the experiment are combined with a partial equilibrium model to determine the value of information. Acknowledging adjustments of equilibrium prices, health information is shown to have significant value to consumers.
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April, 2008

Fire and Recreational Values in Fire-Prone Forests: Exploring an Intertemporal Amenity Function Using Pooled RP-SP Data

By: Boxall, Peter C.; Englin, Jeffrey E.
An important consideration in managing fire-prone forests is the intertemporal impacts of forest fires. This analysis examines these impacts in a forest recreation setting by fitting a combined stated and revealed data set to explicitly model the effects of forest regrowth following a fire on recreation economic values. The results are particularly useful as they provide clear measures of the time path of recovery of forest amenity values following a fire.
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April, 2008

Weather Derivatives, Spatial Aggregation, and Systemic Risk: Implications for Reinsurance Hedging

By: Woodard, Joshua D.; Garcia, Philip
Previous studies identify limited potential efficacy of weather derivatives in hedging agricultural exposures. In contrast to earlier studies which investigate the problem at low levels of aggregation, we find that better weather hedging opportunities may exist at higher levels of spatial aggregation. Aggregating production exposures reduces idiosyncratic risk, leaving a greater proportion of the total risk in the form of systemic weather risk which can be effectively hedged using relatively simple weather derivatives. The aggregation effect suggests that the potential for weather derivatives in agriculture may be greater than previously thought, particularly for aggregators of risk such as reinsurers.
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April, 2008

Using a Farmer’s Beta for Improved Estimation of Expected Yields

By: Carriquiry, Miguel A.; Babcock, Bruce A.; Hart, Chad E.
Effects of sampling error in estimation of farmers’ mean yields for crop insurance purposes and their implications for actuarial soundness are explored using farm-level corn yield data in Iowa. Results indicate that sampling error, combined with nonlinearities in the indemnity function, leads to empirically estimated insurance rates that exceed actuarially fair values. The difference depends on the coverage level, the number of observations used, and the participation strategy followed by farmers. A new estimator for mean yields based on the decomposition of farm yields into systemic and idiosyncratic components is proposed, which could lead to improved rate-making and reduce adverse selection.
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April, 2008

Procurement Strategies to Improve Quality Consistency in Wheat Shipments

By: Wilson, William W.; Dahl, Bruce L.
Consistency of functional characteristics in wheat is a concern confronting buyers and sellers. This research analyzes the cost and risk of different procurement strategies for importers. A stochastic simulation model is used to determine the probability of functional characteristics being satisfied subject to quality targets and costs for alternative purchase strategies. Stochastic efficiency was employed to identify purchase strategies that dominate others and to determine the extent of preference. As more specific characteristics are incorporated into a contract, results indicate that the probabilities of meeting end-use requirements increase
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April, 2008

Information Content in Deferred Futures Prices: Live Cattle and Hogs

By: Sanders, Dwight R.; Garcia, Philip; Manfredo, Mark R.
The informational content in live cattle and hog deferred futures prices is assessed using a direct test of incremental forecast ability for two- to twelve-month horizons. For 1976-2007, the results indicate that hog futures prices add incremental information at all horizons, but unique information in live cattle prices declines quickly beyond the eight-month horizon with no incremental information at the twelve-month horizon. The contrast in performance is likely attributable to differences in the quality of public information and the nature of the production process.
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April, 2008

Factors Affecting the Adoption of Soil Conservation Measures: A Case Study of Fijian Cane Farmers

By: Asafu-Adjaye, John
This study explored the extent to which various factors affect Fijian cane farmers’ adoption of soil conservation measures. The significant factors affecting perception of the soil erosion problem include age, education, ethnicity, and extension services. On the other hand, the significant factors affecting soil conservation effort include perception of the erosion problem, net farm income, farm size, land type, and extension services. In general, personal characteristics appear to affect perceptions of soil erosion while the extent of conservation effort is affected by economic and physical factors. The resulting implications for soil conservation policy are discussed.
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April, 2008

Differences in Prices and Price Risk Across Alternative Marketing Arrangements Used in the Fed Cattle Industry

By: Muth, Mary K.; Liu, Yanyan; Koontz, Stephen R.; Lawrence, John D.
Information on prices and price risk differences across marketing arrangements aids fed cattle producers in making choices about marketing methods. As part of the congressionally mandated Livestock and Meat Marketing Study, we investigated fed cattle price and price risk differences across marketing arrangements. The analysis uses data representing cattle purchased by 29 large beef packing plants from October 2002 through March 2005. Results indicate that marketing agreements offered the best tradeoff between price level and price risk. Forward contracts had the lowest average yet highly volatile prices. Auction barn prices were higher than other methods but also the most volatile.
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