Volume 33, Issue 2, August 2008

August, 2008

Market Power in the Corn Sector: How Does It Affect the Impacts of the Ethanol Subsidy?

By: Saitone, Tina L.; Sexton, Richard J.; Sexton, Steven E.
Market power is discussed in debates about subsidies for ethanol production. The structural conditions in the corn industry create a case for concerns about market power. We develop an analytical model for determining the production and price impacts and the distribution of benefits from the U.S ethanol subsidy when upstream sellers in the seed sector and downstream buyers in the processing sector may exercise market power. Results demonstrate that the impacts on prices and output are probably limited. Distribution impacts are much greater. Seed producers and corn processors with market power capture relatively large shares of subsidy benefits.
Download Full Article

August, 2008

Get a Grip: Should Area Revenue Coverage Be Offered Through the Farm Bill or as a Crop Insurance Program?

By: Paulson, Nicholas D.; Babcock, Bruce A.
The successful expansion of the U.S crop insurance program has not eliminated ad hoc disaster assistance. An alternative currently being explored by Congress in preparation of the 2008 farm bill is a standing disaster relief program. One form such a program could take can be found in the area insurance programs currently offered by the U.S crop insurance program. Total per acre taxpayer costs of offering Group Risk Income Protection (GRIP) in Indiana, Illinois, and Iowa for corn and soybeans are estimated to have the ability to fund a country target revenue program at the 93% coverage level.
Download Full Article

August, 2008

Spatial Dependence in Hedonic Property Models: Do Different Corrections For Spatial Dependence Result in Economically Significant Differences in Estimated Implicit Prices?

By: Mueller, Julie M.; Loomis, John B.
While data used in hedonic property models are inherently spatial in nature, to date the majority of past regression analyses have used OLS models that overlook possible spatial dependence in the data when estimating implicit prices for environmental hazards. This paper explicitly addresses spatial dependence in a hedonic property model. We use robust testing procedures to determine the existence and type of spatial dependence in our OLS model. After identifying the nature of the spatial dependence, OLS estimates of the implicit price of wildfire risk are compared to implicit prices obtained using a spatial error model with three different spatial weighting matrices. Spatially corrected estimates of implicit prices are often found to be nearly the same as those obtained using OLS. Our results indicate that the inefficiency of OLS in the presence of spatially correlated errors may not always be economically significant, suggesting nonspatial hedonic property models may provide results useful for policy analysis, and spatial and nonspatial hedonic property models may provide results useful for policy analysis, and spatial and nonspatial hedonic property models might be pooled in meta-analysis.
Download Full Article

August, 2008

Public Policy and Endogenous Beliefs: The Case of Genetically Modified Food

By: Lusk, Jayson L.; Rozan, Anne
When individuals have limited information and are uncertain about the quality of a good, government policy, or the lack thereof, can serve as a signal to consumers about the likelihood of realizing alternatives states of nature. In this paper, we focus on a controversial beliefs about government intervention: the market for genetically modified food. Data from a mail survey were used to estimate an econometric model where beliefs about labeling policy, beliefs about the safety of genetically modified food, and willingness to consume genetically modified food are endogenously determined. Results indicate that consumers who believe the government has a mandatory labeling policy for genetically modified food are more likely to believe genetically modified food is unsafe than consumers who believe no such policy is in place.
Download Full Article

August, 2008

Balancing Grower Protection Against Agency Concerns: An Economic Analysis of Contract Termination Damages

By: Lee, Myoungki; Wu, Steven Y.; Fan, Maoyong
This study examines legislation that would grant growers termination damages if their contracts are terminated. Our model suggests that, with no contracting frictions, damages would not reduce ex ante efficiency as processors can contract around damages through contract restructuring. Growers would earn less under continuation but would be protected if terminated, although overall expected profits would be unaffected. However, when contracting friction exist, then efficiency losses can occur as processors would be constrained in restructuring contractual incentives to deal with moral hazard. Growers' expected profits would increase while processors' profit would decrease.
Download Full Article

August, 2008

Forest Amenities and Location Choice in the Southwest

By: Hand, Michael S.; Thacher, Jennifer A.; McCollum, Daniel W.; Berrens, Robert P.
Locations with natural characteristics, such as forest, are thought to be attractive residential locations. This proposition is tested in the Southwest United States, composed of Arizona and New Mexico. This paper presents a conditional logit model of location choice estimated with household observations from the U.S census, geographic information system (GIS) data, and county-level data. Results suggest that forest area, both in one's own location and nearby, increases the probability of choosing a location. But significant heterogeneity in location choices exists; an income effect and life-cycle effects on the demand for forest amenities appear to determine location choices.
Download Full Article

August, 2008

Modeling of Avian Influenza Mitigation Policies Within the Backyard Segment of the Poultry Sector

By: Elbakidze, Levan
This study presents a conceptual model for the analysis of avian influenza mitigation options within the small poultry farm sector (backyard flocks). The proposed model incorporates epidemiological susceptible-infected-recovered (SIR) methodology into an economic cost-minimization framework. The model is used to investigate the implications and interdependencies of mitigation options that influence inter-flock contact rates of asymptomatic and symptomatic flocks, and reduce the duration of symptomatic and asymptomatic periods. The results indicates that for shorter asymptomatic periods the efforts to control inter-flock contract rates should concentrate on symptomatic flocks, while for longer asymptomatic periods the control of inter-flock contacts should be focused on asymptomatic flocks. Efforts to reduce the length of asymptomatic and symptomatic periods and efforts to reduce inter-flock contact rates function as substitute strategies.
Download Full Article

August, 2008

Testing Whether Field Auction Experiments Are Demand Revealing in Practice

By: Corrigan, Jay R.; Rousu, Matthew C.
Recent evidence suggests that participants' misunderstanding of experimental auction mechanism can systematically bias auction results. We present a simple technique for testing whether field auction mechanism and, by extension, whether auction bids provide an unbiased estimate of participants' willingness to pay.
Download Full Article

August, 2008

The Demand for Agritourism in the United States

By: Carpio, Carlos E.; Wohlgenant, Michael K.; Boonsaeng, Tullaya
Using data from the 2000 National Survey on Recreation and the Environment, this study explores factors affecting visits by the American population to farms and the economic value of the rural landscapes for farm visitors. The number of farm recreation trip visits was estimated to have own-price elasticity of -0.43 and an income elasticity of 0.24. Location of residence, race, and gender were found to be important determinants of the number of farm trips. The calculated consumer surplus is estimated at $174.82/ trip, of which $33.50 is due to the rural landscape.
Download Full Article