Volume 41, Issue 3, September 2016

September, 2016

The Role of Marketing Contracts in the Adoption of Low-Input Production Practices in the Presence of Income Supports: An Application in Southwestern France

By: Ricome, Aymeric; Chaib, Karim; Ridier, Aude; Kephaliacos, Charilaos; Carpy-Goulard, Francoise
This paper analyzes the link between choices of production technologies and marketing contracts. We first develop an analytical model showing that both decisions are linked and influenced by risk and direct payments. Then, a numerical application based on a stochastic farm model is implemented on a representative farm from southwestern France. Among other things, we find that a wide availability of marketing contracts reduces the impact of agricultural policies on agricultural practices. Moreover, marketing contracts can encourage farmers to adopt green practices, which are—in France—riskier than conventional techniques.
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September, 2016

Horizon and Free-Rider Problems in Cooperative Organizations

By: Giannakas, Konstantinos; Fulton, Murray; Sesmero, Juan
This paper develops a model of heterogeneous individuals to analyze the interacting horizon and free-rider problems faced by cooperative organizations. Analytical results identify the conditions under which a cooperative will form despite these property rights problems and show that (i) differences in members’ time horizons need not necessarily lead to short-term cooperative investments and (ii) free riding is not always a problem for cooperatives. The analysis also shows how a cooperative can use a membership fee to address these property rights problems and provides additional insights into the relationship between a cooperative’s cost structure and membership fees.
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September, 2016

Effect of Location Variables on Feeder Calf Basis at Oklahoma Auctions

By: Mallory, Shannon; DeVuyst, Eric A.; Raper, Kellie C.; Peel, Derrell; Mourer, Gant
Past research has reported differences in feeder cattle prices received due to location of sale barns, but little is reported on the source of those differences.We developed a feeder calf hedonic pricing model that includes location-specific characteristics. Local factors may affect transaction costs for buyers and sellers, impacting the basis. Results show that basis increased $0.64/cwt for every 100,000 acres of wheat within a 100-mile radius. Basis decreased $0.07 per mile from four-lane roads. Basis decreased $1.99 per 1% of value-added volume. The impact of lot size, weight, hide color, frame, gender, and other phenotypic characteristics were also analyzed.
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September, 2016

Relational Contracts and Product Quality: The Effect of Bargaining Power on Efficiency and Distribution

By: Cordero Salas, Paula
This paper studies how changes in bargaining power alter the surplus distribution and sustainability of incomplete agricultural contracts. When an enforceable payment exists, selfenforcement is always sustainable, the highest quality is traded, and any surplus distribution is possible. However, there is a limit to how much bargaining power can be exercised when contracts are fully incomplete, as a seller cannot extract too much of the surplus without breaking down the trading relationship. The results provide insight into the limits of policies that attempt to redistribute bargaining power in markets having informal institutions or in which parties rely on implicit contracts.
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September, 2016

Risk Aversion and Preference for Store Price Format

By: Yonezawa, Koichi; Richards, Timothy J.
When choosing among retail store formats, consumers face two alternatives: everyday-low-price (EDLP) stores that offer lower mean prices, with less variation over time, or promotion-based (HILO) stores that offer higher mean prices but more variation over time. In this study, we investigate a relationship between consumers’ risk preferences and their store-choice decisions. We use data from a two-stage, incentive-compatible experiment to measure subjects’ risk preferences and to examine how their attitudes toward risk influence their preferences for store price format.We find that retailers’ pricing strategies allow consumers with different risk attitudes to choose a particular store price format.
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September, 2016

Market Integration and Price Transmission in theWorld Rice Export Markets

By: Chen, Bo; Saghaian, Sayed
This paper investigates market integration and asymmetric price transmission in the world rice export markets. Using monthly rice prices from Thailand, Vietnam, and United States, we employ the Johansen test and estimate the threshold vector error correction model (TVECM). Our main findings are that export prices in the three countries are cointegrated, with Thailand and the United States the price leaders, and that the Vietnamese price adjusts faster to long-run equilibrium when it is above its equilibrium level with Thai and U.S. prices. These results suggest market integration and competition rather than collusion are prevalent in world rice markets. Policy implications are also briefly discussed.
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September, 2016

Calf and Yearling Prices in the Western United States: Spatial, Quality, and Temporal Factors in Satellite Video Auctions

By: Blank, Steven C.; Saitone, Tina L.; Sexton, Richard J.
This paper investigates spatial, quality, and temporal factors impacting prices of calves and yearlings in the western United States using satellite video auction data and a hedonic regression framework. Prices received by western ranchers are discounted by approximately the costs of shipping cattle to the Midwest for processing. Other key results include identifying the presence of temporal price premiums for seller-offered forward contracts, providing new estimates of the marginal value associated with key quality attributes and management practices and finding support for the price benefits of third-party quality certification. We also link variability in estimated valuations for value-added attributes to the stage of the cattle cycle.
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September, 2016

Transitioning to Organic Crop Production: A Dynamic Programming Approach

By: Delbridge, Timothy A.; King, Robert P.
Despite evidence that organic cropping systems in the Midwest can be more profitable than conventional systems, only a small percentage of cropland has been certified as organic. This paper models the decision to transition to organic crop production as a dynamic programming problem in which investment is reversible but includes sunk costs. Results indicate that the risk and unrecoverable costs associated with organic transition lead to a significant option value, and this provides a partial explanation for low transition rates in the baseline scenario. Sensitivity to expected organic yield and price levels is explored, as are the costliness of reverse transition and the short-term effect of high conventional return levels.
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September, 2016

The Impact of Agricultural Subsidies on the Corn Market with Farm Heterogeneity and Endogenous Entry and Exit

By: Devadoss, Stephen; Gibson, Mark J.; Luckstead, Jeff
We develop a model with farm-level heterogeneity in productivity and endogenous entry and exit decisions to analyze the effect of price supports and direct payments on the U.S. corn market. The analytical results show that, contrary to the existing literature, removal of direct payments augments productivity while removal of price supports does not impact productivity, and direct payments can lead to larger production distortions than price supports under certain conditions. The simulation results corroborate the theoretical findings in that if both policies are equal in magnitude, then direct payments result in larger price, output, and welfare distortions than price supports.
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September, 2016

Putting the Chicken Before the Egg Price: An Ex Post Analysis of California’s Battery Cage Ban

By: Malone, Trey; Lusk, Jayson L.
California legislation outlawed the use and sale of battery cages for egg-laying hens in 2015. While a number of ex ante studies projected the effects of the housing prohibitions, the ultimate ex post effects are unknown. Using a price series reported by the USDA, we study the movement of daily egg prices in California and the United States before and after the law’s implementation. Depending on the methods used, we find that Californians now pay between $0.48 and $1.08 more for a dozen eggs. The estimates suggest an annual reduction in California consumer surplus of between $400 million and $850 million.
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September, 2016

U.S. Sweetener Demand Analysis: A QUAIDS Model Application

By: Lakkakula, Prithviraj; Schmitz, Andrew; Ripplinger, David
We estimate the expenditure, price, and Engel parameters for the major U.S. caloric sweeteners (sugar, high-fructose corn syrup [HFCS], and glucose), for the 1975–2013 period using the quadratic almost ideal demand system (QUAIDS). The estimated parameters are then used to compute expenditure elasticities and both uncompensated and compensated price elasticities. We find that consumer expenditures are positively elastic for both sugar and HFCS but not for glucose. The own-price elasticity of demand for sugar is less elastic compared to those of HFCS and glucose. Our results will help design an effective U.S. sweetener tax policy.
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September, 2016

The Economic Impact of New Technology Adoption on the U.S. Apple Industry

By: Busdieker-Jesse, Nichole L.; Nogueira, Lia; Onal, Hayri; Bullock, David S.
We develop a temporal and spatial partial equilibrium model to evaluate the welfare impact of new technology on the apple industry to control fire blight. We show significant benefits of GM technology relative to conventional methods and other new methods such as microencapsulation of biological agents. We also show that the cost-reduction benefits of the technology exceed the yield-increasing benefits.
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