2009

December, 2009

Do Fishermen Have Different Attitudes Toward Risk? An Application of Prospect Theory to the Study of Vietnamese Fishermen

By: Nguyen, Quang; Leung, PingSun
Field experiment and household survey data are combined to investigate whether working in a risky occupation such as fishing makes fishermen have different risk preferences than individuals in other occupations. Prospect theory is utilized as the main analytical framework and a structural model approach is developed to simultaneously correlate the parameters of the utility function under prospect theory with other socioeconomic variables. The key finding is that working in fishing makes economic agents less risk averse than others. Fishermen also tend to be less sensitive to probability weighting changes in the experiment. It is possible that fishermen have adapted to their unique environment by using specific heuristics for decision making under conditions of uncertainty.
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December, 2009

Choice of Remuneration Regime in Fisheries: The Case of Hawaii’s Longline Fisheries

By: Nguyen, Quang; Leung, PingSun
One of the most prominent features of remuneration in Hawaii’s longline fisheries industry has been the norm of share contract regimes. This paper investigates whether the use of the share contract regime is positively correlated to increased economic returns. The principal-agent framework is applied to develop a theoretical model for the remuneration choice. Empirical estimation is conducted using a switching regression model that accounts for the effects of certain vessel characteristics on revenue, depending on remuneration regime used (i.e., share contract or flat wage), as well as the potential selection bias in the vessels’ contractual choice. Key findings from counterfactual simulations indicate: (a) a negative selection related to choosing share contracts, and (b) flat wage vessels would experience significantly higher revenues if they switched to share contracts. Thus, even though the labor market in Hawaii’s longline fisheries relies upon foreign crew members, the results suggest that owners of flat wage vessels would benefit by applying share contracts to increase their revenues.
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December, 2009

Assessing the Returns from Organic Marketing Channels

By: Park, Timothy A.
Organic farmers face heightened pressure in developing a portfolio of different marketing channels and in bargaining competitively with increasingly sophisticated marketing participants in the supply chain for organic products. This research assists producers by identifying specific farm and demographic factors that enhance earnings given the choice of marketing outlet. The two significant selectivity coefficients confirm that organic earnings when marketing through a single outlet are biased upward since farmers who are better suited to market through multiple outlets have already moved away from this marketing strategy. An accurate evaluation of the projected earnings from any marketing strategy must account for selectivity effects.
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December, 2009

Public Goods, Hysteresis, and Underinvestment in Food Safety

By: Richards, Timothy J.; Nganje, William E.; Acharya, Ram N.
Despite the economic damage inflicted by a foodborne disease outbreak, firms at all points in the supply chain appear to be reluctant to invest in the necessary food safety technologies and practices. We argue that these investments are subject to both hysteretic and public good effects, and construct a theoretical model of food safety investment, calibrated to describe the 2006 E. coli outbreak in California spinach. Both effects are found to induce delays in food safety investments, but the public good effect dominates. We suggest a number of policy options that improve incentives to contribute to the public good.
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December, 2009

The Payment Vehicle Used in CV Studies of Environmental Goods Does Matter

By: Ivehammar, Pernilla
This paper examines the effect of the payment vehicle on the valuation of an environmental good with the contingent valuation method (CVM). Results from three CV studies comparing different payment vehicles by using split samples when valuing environmental encroachment caused by roads in Sweden are presented and compared to results from other such split-sample studies of payment vehicle effects. The results are consistent and show that the payment vehicle affects the valuation, but not always the way expected when considering incentives to behave strategically.
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December, 2009

The Economic Value of Improved Wastewater Irrigation: A Contingent Valuation Study in Addis Ababa, Ethiopia

By: Weldesilassie, Alebel B.; Fror, Oliver; Boelee, Eline; Dabbert, Stephan
In developing countries the use of wastewater for irrigation can cause considerable harm to public health and the environment. This paper uses contingent valuation to estimate the economic value of safe use of wastewater for crop production on farms within and around Addis Ababa, Ethiopia. We estimate a surprisingly large welfare gain from policies for safe use of wastewater for irrigation. Our study highlights the potential and the possible pitfalls of using nonmarket valuation techniques as an input into public decision making where traditional resource use interacts with public health and environmental concerns in complex ways.
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December, 2009

Pasture-Based Dairy Systems: Who Are the Producers and Are Their Operations More Profitable than Conventional Dairies?

By: Gillespie, Jeffrey M.; Nehring, Richard F.; Hallahan, Charles B.; Sandretto, Carmen L.
U.S. dairy operations are sorted via a multinomial logit model into three production systems - pasture-based, semi-pasture-based, and conventional. Region, farm size, financial situation, and production intensity measures impact system choice. Analysis follows to determine the impact of production system on enterprise profitability. Region, farm size, and demographic variables impact profitability, as does system choice - semi-pasture-based operations were less profitable than conventional operations on an enterprise, per hundredweight of milk produced basis. Significant differences were not found in the profitability of pasture-based operations versus those using other systems.
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December, 2009

The Impact of Weather Extremes on Agricultural Production Methods: Does Drought Increase Adoption of Conservation Tillage Practices?

By: Ding, Ya; Schoengold, Karina; Tadesse, Tsegaye
The paper combines panel data techniques with spatial analysis to measure the impact of extreme weather events on the adoption of conservation tillage. Zellner’s SUR technique is extended to spatial panel data to correct for cross-sectional heterogeneity, spatial autocorrelation, and contemporaneous correlation. Panel data allow the identification of differences in adoption rates. The adoption of no-till, other conservation tillage, and reduced-till are estimated relative to conventional tillage. Extremely dry conditions in recent years increase the adoption of other conservation tillage practices, while spring floods in the year of production reduce the use of no-till practices.
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December, 2009

Biofuels: Political/Economic Boondoggle or Energy Salvation for Western States?

By: Young, Douglas L.
Nearly all western states lack comparative advantages for producing corn for ethanol and oilseeds for biodiesel. Despite this disadvantage, most western states have legislated incentives for production of biofuels. Unfavorable changes in price relationships, high transportation costs for imported feedstocks, and tight credit markets in 2008 and 2009 led to bankruptcies and plant closures at a disproportionate rate in the western biofuel industry. Policy makers in western states are advised to fund research and development for bioenergy and biofuel feedstocks in which they have a comparative advantage. These include forestry by-products, food processing and crop residues, and livestock wastes.
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December, 2009

Leadership Development in Agricultural Economics: Challenges for Academic Units

By: Boland, Michael A.
Crafting and executing strategy are key tasks to be carried out by a manager of an enterprise. Unit leaders are managers of an academic enterprise called a department. The objective of this paper is to provide an overview of information collected from interviews with unit leaders of departments of agricultural economics and discuss challenges being faced by these unit leaders in March 2009.
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December, 2009

END MATERIALS

This section includes: Abstracts of 2009 WAEA Invited and Selected Papers and Organized Symposia, WAEA Annual Meetings, Kanuai, Hawaii, June 24-26, 2009; JARE Editors' Report December 2009, WAEA 2008 Award Winners, WAEA Past Presidents 1927-2009, WJAE/JARE Past Editors
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August, 2009

Evaluating the Farmer’s-Share-of-the-Retail-Dollar Statistic

By: Brester, Gary W.; Marsh, John M.; Atwood, Joseph A.
Conventional wisdom appears to support the thesis that declines in USDA’s farmer’s share-of-the-retail-dollar (FS) statistics are indicators of low returns to agricultural production. We estimate changes in cattle and hog FS statistics and their relationship with producer surplus (PS) for changes in various exogenous factors. The method accounts for correlations among structural parameter estimates while simulating multivariate distributions of joint parameter realizations. The simulations indicate that relationships between FS and PS depend on the source of exogenous shocks. The lack of informational content in FS statistics suggests these data should not be used for policy purposes.
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August, 2009

Harvest-Time Protein Shocks and Price Adjustment in U.S. Wheat Markets

By: Goodwin, Barry K.; Smith, Vincent H.
Dynamic relationships among three classes of wheat are investigated using threshold VAR models that incorporate the effects of protein availability. Changes in the stock of protein are found to generate significant responses in the prices of hard red spring wheat and hard red winter wheat, but not soft red wheat. The responses to identical changes in protein stocks are larger when the magnitudes of deviations of protein stocks from normal levels are large. Shocks to the prices of individual classes of wheat result in complex responses in the prices of the other wheat classes. Notably, however, a shock to the price of hard red winter wheat appears to result in little or no response in the price of hard spring wheat, though importantly, the opposite is not true.
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August, 2009

Retail Prices for Milk by Fat Content: A New Theory and Empirical Test of Retailer Pricing Behavior

By: Xia, Tian; Sexton, Richard J.
We study a heretofore unexamined type of product differentiation, horizontally differentiated products with differential costs, and apply the analysis to retail pricing of fluid milk products. The theoretical models yield unique predictions for the relationship among prices of the four horizontally differentiated fluid milk products (skim, 1%, 2%, and whole milk) and the impacts of butterfat and nonfat milk costs on prices, depending upon the form of retail competition. An empirical analysis of retail milk pricing for four major cities in California enables tests to be conducted of which form of behavior best characterizes grocery retailing in these cities.
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August, 2009

Smart Money: The Forecasting Ability of CFTC Large Traders in Agricultural Futures Markets

By: Sanders, Dwight R.; Irwin, Scott H.; Merrin, Robert P.
The forecasting content of the Commodity Futures Trading Commission’s Commitments of Traders (COT) report is investigated. Bivariate Granger causality tests show very little evidence that traders’ positions are useful in forecasting (leading) returns in 10 agricultural futures markets. However, there is substantial evidence that traders respond to price changes. In particular, noncommercial traders display a tendency for trend following. The other trader classifications display mixed styles, perhaps indicating those trader categories capture a variety of traders. The results generally do not support use of the COT data in predicting price movements in agricultural futures markets.
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August, 2009

Do Transaction Costs and Risk Preferences Influence Marketing Arrangements in the Illinois Hog Industry?

By: Franken, Jason R.V.; Pennings, Joost M.E.; Garcia, Philip
Risk reduction and transaction costs are often used to explain contracting in the U.S. hog industry with little empirical support. Using a unified conceptual framework that draws from risk behavior and transaction cost theories, in combination with unique survey and accounting data, we demonstrate that risk preferences and asset specificity impact Illinois producers’ use of contracts and spot markets. In particular, producers’ investments in specific hog genetics and human capital are related to selection of long-term marketing contracts over spot markets. Producers who perceive greater levels of price risk and/or are more averse are more (less) likely to use contracts (spot markets).
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August, 2009

Labor Pains: Valuing Seasonal versus Year-Round Labor on Organic Farms

By: Lohr, Luanne; Park, Timothy A.
Although organic farm activities seem to demand year-round employees, seasonal workers dominate the organic labor market. We use the elasticity of complementarity to assess input substitutability and predict adjustments. Farm size and farm workers are complementary inputs. Incentives that encourage farmers to expand employment of year-round and seasonal workers raise the marginal product and rates of return to organic acreage in relative wage payments. A commitment to local sales reduces organic farm incomes. A shift to local sales leads to decreased use of seasonal workers but at higher wages, with smaller adjustments in the wages of year-round workers.
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August, 2009

Gender Bias Claims in Farm Service Agency’s Lending Decisions

By: Escalante, Cesar L.; Epperson, James E.; Raghunathan, Uthra
This study analyzes the courts’ denial of women farmers’ motion for class-action certification of their lawsuits alleging gender discrimination in Farm Service Agency (FSA) lending decisions. The plaintiffs’ claim of “commonality” of circumstances in women farmers’ dealings with FSA is tested using a four-year sampling of Georgia FSA loan applications. The econometric framework has been developed after accounting for the separability of loan approval and amount decisions, as well as endogeneity issues through instrumental variable estimation. This study’s results do not produce overwhelming evidence of gender bias in FSA loan approval decisions and in favor of the “commonality” argument among Georgia FSA farm loan applicants.
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August, 2009

The Viability of Creating Wetlands for the Sale of Carbon Offsets

By: Hansen, LeRoy T.
This analysis estimates the profitability of restoring wetlands for the sale of carbon offsets. Results indicate that about 7% to 12% of the recently restored grassed wetlands of the prairie pothole and high plains regions and 20% to 35% of the forested wetlands of the Mississippi alluvial valley and Gulf-Atlantic coastal flats regions could have carbon offset values that exceed the cost of restoring the wetland and the opportunity cost of moving the land out of agricultural production. Given the uncertainties, the analysis applies conservative estimates of wetlands’ costs, offset prices, and wetlands’ effects on greenhouse gases.
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