production contracts and productivity in the u s hog sector this article measures the impact of contracting on partial and total factor productivity and the production technology of u s hog operations a sample selection model accounts for the fact that unobservable variables may be correlated with both the operators decision to contract and farm productivity results indicate that the use of production contracts is associated with a substantial increase in factor productivity and represents a technological improvement over independent production results also identify determinants of farmers decisions to contract and other factors influencing farm the rapid increase in the use of production contracts is a notable feature of the structural change taking place in the us hog industry between 1992 and 1998 the portion of feeder pig to finish hog operations using production contracts increased from 11 to 34 while the share of output produced under contract increased from 22 to 63 mcbride mcbride and key production contracts offer several potential advantages over independent production that could explain their growing prevalence contracts may serve to lower transaction costs associated with search negotiation and transfer reduce asymmetric information between growers and processors about product quality improve coordination of product delivery and lower income risk for growers in addition contracting may raise farm productivity by improving the quality of managerial inputs by speeding the transfer of technical information to growers or by facilitating growers access to credit thereby permitting the adoption of newer more efficient technologies in this article we focus on identifying and measuring the farm level productivity gains if any that can be attributed to contracting the recent growth in contracting does not necessarily imply that contracts are associated with higher farm productivity the increase in the use of contracts may have been propelled

designing and rating an area yield crop insurance contract this article documents the design and rate making procedures used in the development of the group risk plan grp the new federal crop insurance product that insures based on area yield the authors of this article worked closely with personnel in the federal crop insurance corporation and others in developing methodological and practical constraints needed in implementing a workable area yield contract grp indemnity payments are made based on percentage shortfalls in actual county yields relative to a forecasted yield historical county yield data are used to develop forecasted yields and premium rates

a conjectural variations model of reduced japanese milk price supports conjectural variations are estimated to determine the degree of imperfection in the japanese milk market estimated conjectural variations indicate that the japanese milk market is imperfectly competitive but is becoming more competitive our comparative static analysis indicates that when the milk support price is reduced the fluid milk price will decline less under the current imperfectly competitive structure than it would under a competitive structure

distinguishing between equilibrium and integration in spatial price analysis this article introduces a new spatial price analysis methodology based on maximum likelihood estimation of a mixture distribution model incorporating price transfer cost and trade flow data this method permits differentiation between market integration and competitive market equilibrium and derivation of intuitive measures of intermarket tradability competitive market equilibrium perfect integration segmented equilibrium and segmented disequilibrium one can also use these estimates to derive semiparametric measures of time varying regime probabilities to track changing market conditions an application to trade in soybean meal among pacific rim economies demonstrates the usefulness of the method copyright 2002 oxford university press

the performance of agricultural market advisory services in corn and soybeans the purpose of this article is to evaluate the performance of market advisory services for the 1995 2003 corn and soybean crops a new database from the agricultural market advisory services agmas project is used in the evaluation this database should not be subject to survivorship and hindsight biases overall the results provide little evidence that advisory services as a group outperform market benchmarks particularly after considering risk the evidence is more positive versus the farmer benchmarks even after taking risk into account results also suggest that it is difficult to predict the pricing performance of advisory services across crop years

intangible capital market share and corporate strategy this paper theoretically and empirically identifies the determinants of firm profitability and market share for twelve broadly defined us manufacturing industry groups the effects of advertising research and development and diversification on profitability and market share are econometrically tested for each industry group and corporate strategy implications of the results are considered one major result of the analysis is that research and development r d tends to be much more effective as a means of enhancing firm profitability than advertising and research and development spending decisions are more closely related to the profitability of r d than advertising decisions are related to the profitability of advertising

middlemen as guarantors of quality abstract we analyze an experience good model with producer moral hazard which is based on shapiro quarterly journal of economics 1983 98 659 679 we develop conditions under which a good will be sold through a middleman instead of being sold directly by the producer when selling costs may even be increased by the presence of middlemen middlemen help to alleviate the producer moral hazard problem by dropping a producer s good and lowering her future sales if the good is not of its claimed quality the middleman engages in this policing activity in order to maintain his own reputation as a seller of high quality goods

commodity price forecasting with large scale econometric models and the futures market this paper compares the accuracy of major commercial price forecasts for corn wheat soybeans soybean oil soybean meal cotton live cattle and hogs the price forecasting information in futures prices is evaluated by comparison the results among commercial forecasters are mixed but futures prices perform relatively better on average although not universally so these results have important implications for operational risk management

cointegration tests and spatial price linkages in regional cattle markets this analysis empirically evaluates spatial linkages in regional cattle markets using cointegration tests of regional price series several markets were not cointegrated over the 1980 through 1987 period however significant increases in cointegration of several regional livestock markets are observed through the 1980s the increased cointegration parallels significant structural changes in the livestock industry a formal analysis of market characteristics reveals that distances between markets industry concentration ratios market volumes and market types have significant influences on cointegration relationships between markets

organizational commitment in a mixed oligopoly agricultural cooperatives and investor owned firms a number of agricultural cooperativeorganizations prominent examples includetri valley growers and the saskatchewanwheat pool currently face considerable nancialand organizationalchallenges externally these challenges include a grow ing concentration in a number of sectors e g beef and pork packing and a greater preva lence of vertical integration and contracts internally cooperatives co ops encountergreater heterogeneity among members greater property rights problems cook anda decline in member commitment fulton1999 this latter factor has been cited asone reason for the declining market shareand poor nancialperformance of a numberof co ops fulton and gibbings the purpose of this article is to examinethe issue of member commitment in the con text of a mixed oligopoly where co ops andinvestor owned rms iofs compete witheach other in supplying a consumer good

marketing margins and price uncertainty the case of the u s wheat market this paper seeks to determine the effect of changes in output price risk on marketing margins a theoretical model of price determination in a marketing channel with risk averse firms is developed this model shows that if marketing firms are competitive and decreasingly absolute risk averse then an increase in output price risk should result in higher expected marketing margins empirical evidence from the wheat marketing channel supports the theoretical model increased price variability significantly increases wheat marketing margins for both the farm mill margin and the mill retail margin these results suggest a potential benefit from price stabilization programs

beggar thy neighbor advertising theory and application to generic commodity promotion programs profits from generic advertising by a producer group often come partly at the expense of producers of closely related commodities the resulting tendency toward excessive advertising is exacerbated by check off funding to analyze this beggar thy neighbor behavior we compare a scenario where different producer groups cooperate and choose their advertising expenditures jointly to maximize the sum of profits across the groups and a scenario where they optimize independently in an illustrative example using 1998 data for u s beef and pork the noncooperatively chosen expenditure on beef and pork advertising is more than three times the cooperative optimum copyright 2001 oxford university press

price advertising and the deterioration of product quality arguments in favour of self enforced bans on advertising by professionals often rely on the stylized fact that advertising can communicate information about price but not about quality this being the case it is argued that allowing professionals to advertise runs the risk that firms will compete vigorously over price at the expense of the quality of their product this paper shows that even if price can communicate no information directly about quality it can do so indirectly because price will be a signal of quality because of this allowing advertising is shown to improve consumer welfare

hedging with crop yield futures a mean variance analysis this investigation into the use of new chicago board of trade yield futures to manage price and yield risks shows that a risk minimizing firm can reduce its variance of profit by hedging in both markets compared to hedging in price futures only the greater the variance of the contract underlying yield the less effective the two instrument hedge hedging effectiveness of the dual strategy also depends on the price and yield bases and the effect of a change in either basis depends on whether the established crop yield futures position is short or long

methods for selecting the optimal dynamic hedge when production is stochastic a dynamic hedging problem with stochastic production is solved the optimal feedback rules recognize that future hedges will be chosen optimally based on the most current information the resulting distribution of revenue is analyzed numerically this analysis enables the hedger to select his appropriate level of risk aversion

bonding and nonbonding signals of product quality this article examines the essential role of bonding in most signaling models where quality is subject to moral hazard problems an advertising model in which advertising is a durable asset whose value is reduced by cheating illustrates how the bonding capacity of a signal determines its cost characteristics of the market that govern how well a signal is targeted to relevant consumers and how information about cheating is spread are critical to determining bonding capacity and hence to the choice among potential signals this bonding perspective explains the literature s widely divergent predictions about the conditions necessary for quality signals copyright 1990 by the university of chicago

industrialization and consolidation in the u s food sector implications for competition and welfare good sources for information on recent developments in food market structure include barkema drabenstott and welch u s department of agriculture 1996b and rogers my objective is not to add to this literature but rather to consider what we have learned as a profession about the rapid consolidation in food processing and distribution what are its implications for market power economic efficiency and the distribution of economic welfare among producers consumers and marketers

measuring market power in multi product oligopolies the us meat industry this paper develops and estimates an economic model for measuring market power in a quantity setting oligopoly engaged in the joint production of demand related goods the model which allows for firms conjectures about both same and cross market responses to own output variation is applied to the us meat beef and pork industry he hypothesis that the industry s equilibrium reflects price taking behaviour is rejected the hypothesis of no cross effects cannot be rejected roughly half of the farm to retail price spreads for beef and pork appear to be attributable to market power

toward a positive economic theory of hedging the hedging models developed over the last half century are evaluated for their ability to explain the actual hedging behavior of the various economic agents this evaluation shows a total lack of a reasonable positive model of hedging behavior while each class of existing models predicts some observed behavior none is able to predict the broad range of actions that is easily observed in the real world in this paper i develop such a model and include a plausible and coldly rational economic explanation for why farmers don t hedge at all while merchandisers with identical risk attitudes will fully hedge

a century of research on agricultural markets this article provides a perspective on major innovations in research on agricultural markets over the past century we review research on market structure and performance vertical coordination arrangements and institutions for producer collective action contributions to empirical modeling of agricultural price determination and marketing margins are also evaluated as are innovations in research on spatial market relationships and the role of storage finally we discuss contributions to understanding market information systems and the functioning of market based mechanisms for agri

bivariate garch estimation of the optimal commodity futures hedge six different commodities are examined using daily data over two futures contract periods cash and futures prices for all six commodities are found to be well described as martingales with near integrated garch innovations bivariate garch models of cash and futures prices are estimated for the same six commodities the optimal hedge ratio ohr is then calculated as a ratio of the conditional covariance between cash and futures to the conditional variance of futures the estimated ohrs reveal that the standard assumption of a time invariant ohr is inappropriate for each commodity the estimated ohr path appears non stationary which has important implications for hedging strategies

capital is back wealth income ratios in rich countries 1700 2010 how do aggregate wealth to income ratios evolve in the long run and why we address this question using 1970 2010 national balance sheets recently compiled in the top eight developed economies for the united states united kingdom germany and france we are able to extend our analysis as far back as 1700 we find in every country a gradual rise of wealth income ratios in recent decades from about 200 300 in 1970 to 400 600 in 2010 in effect today s ratios appear to be returning to the high values observed in europe in the eighteenth and nineteenth centuries 600 700 this can be explained by a long run asset price recovery itself driven by changes in capital policies since the world wars and by the slowdown of productivity and population growth in line with the s g harrod domar solow formula that is for a given net saving

calibration of option based probability assessments in agricultural commodity markets a method for evaluating the reliability of option based price probability assessments is developed based on the calibration concept empirical tests using goodness of fit criteria are applied to four agricultural commodities results suggest that assessments in the corn and live cattle markets are reliable but such assessments overstate the volatility of soybean prices and understate the location of hog prices

a dynamic analysis of marketing orders voting and welfare this paper presents a dynamic model of how profit maximizing farmers would vote on marketing order rules given that new firms will enter based on rational expectations perfect foresight about the path profits follow early entrants make large short run gains while in the long run marginal firms break even welfare analyses under a dynamic model differ substantially from the static analyses normally reported an evaluation of the profit and welfate effects of marketing orders requires explicit recognition of the gains to be made during the transition from a competitive equilibrium to a regulated equilibrium this paper presents a dynamic model of how profit maximizing farmers would vote on marketing order rules given that new firms will enter based on rational expectations perfect foresight about the path profits follow most previous studies are static and have contrasted the competitive long run equilibrium with the regulated long run equilibrium virtually all of the studies on fruit and vegeta

on being honest and behaving honestly abstract this paper deals with markets with asymmetric information where transactions are repeated infinitely it adds to the standard analysis the requirement that the equilibrium be renegotiation proof rp we show that when there are just one buyer and one seller there is no price that supports an rp equilibrium when there are many buyers and sellers the minimum of the price that supports a no cheating rp equilibrium approaches infinity as the probability that an entering firm will find buyers approaches 1 nonetheless the market is saved if the probability that a particular seller is honest is strictly positive the core of honest sellers imposes honest behavior on everybody else

testing market integration a model of spatial price differentials for a tradable good is proposed which avoids the inferential dangers of received methods using static price correlations the proposed method also extracts more information on the causes of price differentials from the same data the method is illustrated using monthly rice price data for postindependence bangladesh including the very substantial regional price shocks during the 1974 famine impediments to market integration are indicated

risk response in the beef marketing channel a multivariate generalized arch m approach a model of the farm retail price spread for beef is specified under rational expectations in which systematic risk response on the part of marketing intermediaries is allowed the three equation structural model contains potentially time varying risk terms in margin and supply equations which i approximate and estimate using a multivariate garch in mean approach the estimated model is used to infer relative risk premia in beef margins and to simulate short run equilibrium risk effects results indicate that price risk has at times had substantial impacts on farm and retail beef prices and production

measurement of monopoly behavior an application to the cigarette industry a simple scheme is proposed to measure monopoly pricing behavior the coefficient of the tax rate term in a price equation identifies the ratio of price to marginal cost no direct measurement of costs is required so a major problem for other empirical studies of monopoly is avoided empirical results for cross section time series data support rejection of atomistic competition but also provide evidence against the operation of an effective cartel in the cigarette industry the model represents an alternative interpretation of related results in a recent paper by barzel application of the methodology to other markets is feasible

the term structure of implied forward volatility recovery and informational content in the corn options market using a flexible method we develop the term structure of volatility implied by corn futures options with differing maturities and evaluate its ability to predict subsequent realized price volatility the implied forward volatilities anticipate realized volatility well for the nearby interval the implied forward volatilities provide unbiased forecasts and are superior to forecasts based on historical volatilities for more distant intervals early year options predict the direction and magnitude of future volatility changes about as well as a three year moving average and better than a naive forecast however later year options display less forecast power in part due to reduced trading activity

the dissipation of profits by brand name investment and entry when price guarantees quality two previous models of the dissipation of profits generated by the use of quality guaranteeing prices assumed that pro fits were dissipated through investment in brand name capital and ent ry the model of this paper allows both possibilities it is shown th at both types of dissipation will in general occur and that brand n ame investment will dissipate a greater share of profits as the elast icity of consumer response to brand name investment grows larger copyright 1987 by university of chicago press

location costs product quality and implicit franchise contracts abstract in the literature on international trade only little attention has been given to informational asymmetries between firms and consumers with respect to product quality the few economic models that analyze the question of how asymmetric information about product quality might affect trade flows treat product quality as exogeneous in contrast our model takes product quality as an endogeneous variable i e firms can choose the quality they wish to produce in this case location costs can signal product quality under certain conditions and thereby affect international trade flows more specifically intra industry trade in vertically differentiated experience goods can be determined by information asymmetries about product quality

the effects of commodity price stabilization programs in this paper the authors analyze the effects of commodity programs in which the government attempts to support and stabilize price through open market purchases and sales specifically they as sess the effects of such programs on the u s soybean market using a rational expectations model that allows for private storage expected price responsive production and arbitrary support and release price s a salient feature of the model is that private storage and product ion behavior adjusts to changes in government policy stochastic simu lations of the market model demonstrate that price stabilization prog rams can reduce long run market price and destabilize producer revenu e copyright 1988 by american economic association

endogenous product differentiation and trade policy implications for the u s food industry the effects of tariffs on intermediate inputs and final goods in monopolistically competitive industries are assessed output per firm and firm numbers decline due to input tariffs when coupled with output tariffs the change in firm numbers is ambiguous numerical illustrations for u s food processing industries indicate the decline in firm numbers is larger than the decrease in firm output for input tariffs monopolistic competition strengthens the response to input tariffs compared to perfect competition considering the joint effects of input and output tariffs the direction of change in total output may differ between monopolistic and perfect competition

a theoretical and empirical approach to the value of information in risky markets a reply the theory of the competitive firm under price uncertainty is used to develop a money metric of a producer s willingness to pay for additional information this concept is extended to the market by formulating ex ante and ex post measures of the value of a rational expectations forecast the empirical feasibility of these measures are demonstrated by application to a simple two equation model of an agricultural market this abstract was borrowed from another version of this item

testing the theory of tournaments an empirical analysis of broiler production broiler chickens are raised by contract growers whose rewards depend explicitly upon relative performance we use data on the performance of broiler producers facing both tournament and linear performance evaluation compensation structures to test three predictions from the theory of tournaments that changes in the level of prizes that leave prize differentials unchanged will not affect performance that in mixed tournaments more able players will choose less risky strategies and that tournament organizers will attempt to handicap players of unequal ability or reduce mixing to avoid the disincentive effects of mixed tournaments our evidence is consistent with each prediction

how much of commodity price behavior can a rational expectations storage model explain a rational expectations competitive storage model was applied to the u s corn market to assess the aptness of this framework in explaining monthly price behavior in an actual commodity market relative to previous models extensive realism was added to the model in terms of how production activities and storage costs are specified by modeling convenience yield backwardation in prices between crop years did not depend on the unrealistic assumption of zero ending stocks our model generated cash prices that were distributed with positive skewness and kurtosis and mean and variance that increased over the storage season comparable to the persistence and the occasional spikes observed in commodity prices futures prices were generated as conditional expectations of cash prices at contract maturity and the variances of futures prices exhibited realistic time to maturity and seasonal patterns model realizations of cash and futures prices over many years were used to demonstrate the wide variety of price behaviors that could be observed in an efficient market with a similar market structure implying that economic and policy implications drawn from short historical samples of prices could be misleading

an empirical analysis of the demand for multiple peril crop insurance knowledge of factors affecting farmer purchases of crop insurance is essential for evaluating the soundness and profitability of crop insurance programs despite this importance the demand for crop insurance has received limited empirical attention the present paper reports on an empirical assessment of the demand for crop insurance by iowa corn producers adverse selection in the insured pool suggests that producers with differing levels of loss risk have different demand elasticities loss risk is included in the empirical analysis and is found to influence the elasticity of demand results show average demand elasticities of about 0 32 for relative insured acres and 0 73 for liability per planted acre implications for the actuarial soundness of the industry are provided

optimal commodity promotion when downstream markets are imperfectly competitive we investigate the optimal collection and expenditure of funds for agricultural commodity promotion in markets where the processing and distribution sectors may exhibit oligopoly and or oligopsony power the conditions that characterize optimal advertising intensity under perfect competition for funds generated from either per unit or lump sum taxes do not in general hold when marketing is imperfectly competitive simulation analyses show that imperfect competition always reduces farmers optimal advertising expenditure and that an imperfectly competitive marketing sector may capture half or more of the benefits from the funds that are expended copyright 2002 oxford university press

estimating policy effects on spatial market efficiency an extension to the parity bounds model the standard parity bounds model pbm is extended to allow for dynamic shifts in regime probabilities in response to changes in marketing policy the approach allows estimation of the length of the adjustment period and a statistical test for no policy effects the extended pbm is applied to maize and wheat markets in ethiopia evidence of a dynamic adjustment path is found and grain marketing reforms are found to have improved spatial efficiency in a few markets worsened it in a few others but generally to have had little effect on the spatial efficiency of ethiopian grain markets

the farm retail price spread in an imperfectly competitive food industry in a previous article in this journal gardner investigated the effects of three distinct forces affecting food system equilibria shifts in retail demand shifts in farm commodity supply and shifts in marketing input supply he derived comparative static predictions about how the quotient of retail and farm prices the retailfarm price ratio would adjust to changes in each of these exogenous effects the investigation was conducted within a framework that

asymmetry in farm retail price transmission for major dairy products an econometric model is used to estimate the net relationship between changes in the farm level price of milk and changes in the retail prices of four major dairy products fluid milk butter cheese and ice cream results indicate that the farm retail price transmission process in the dairy sector is asymmetric retail dairy product prices adjust more rapidly and more fully to increases in the farm price of milk than to decreases the role in pricing asymmetry of retail demand versus farm supply shifts is tested via a chow type test asymmetry is tested using the houck procedure for estimating nonreversible functions

how should food safety certification be financed an analytical framework where consumers are imperfectly informed about the safety of products is used to investigate the welfare effects of a public certification system several certification fees under alternative structures of certification cost are analyzed by maintaining competition among numerous sellers voluntary certification financed by a per unit fee is efficient and sufficient to signal product safety however mandatory certification linked with a fixed user fee may be necessary if a seller wields monopoly power further certification by a single private agency results in a distorted fee copyright 2001 oxford university press

the demand for multiple peril crop insurance evidence from montana wheat farms an econometric analysis of the demand for multiple peril crop insurance is carried out for a sample of 370 montana wheat farms the study is the first to model the farm s participation and coverage level decisions separately through heckman two stage estimation procedures these decisions are shown to be determined in different ways in addition farms with positive expected returns from insurance make coverage level decisions in different ways from farms with negative expected returns these differences indicate that adverse selection effects limit the efficacy of across the board premium rate increases as mechanisms for reducing loss ratios

the price forecasting performance of futures markets for live cattle and hogs a disaggregated analysis four hypotheses about the price forecasting performance of live cattle and hog futures are tested using disaggregated data live cattle futures are found to have inadequate forecasting performance for each hypothesis and do not provide better forecasts than lagged cash prices live hog futures perform well for three hypotheses but not when economic conditions are unstable hog futures provide better forecasts than lagged cash prices the analysis does not support the contention that these futures markets are agencies for rational price formation

market transparency and market structure the livestock mandatory reporting act of 1999 the premise of the livestock mandatory reporting act of 1999 is that enhanced transparency promotes competition this article provides a theoretical study of the consequences of such transparency for the structure conduct and performance of the livestock industry i conclude that the usefulness of the act to the livestock industry may not be in the value of reported information to feeders as the supporters of the act claim rather by forcing packers to pool information at negligible marginal cost the act may foster more competitive conduct in the procurement of livestock copyright 2003 oxford university press

pricing weather derivatives this article presents a general method for pricing weather derivatives specification tests find that a temperature series for fresno ca follows a mean reverting brownian motion process with discrete jumps and autoregressive conditional heteroscedastic errors based on this process we define an equilibrium pricing model for cooling degree day weather options comparing option prices estimated with three methods a traditional burn rate approach a black scholes merton approximation and an equilibrium monte carlo simulation reveals significant differences equilibrium prices are preferred on theoretical grounds so are used to demonstrate the usefulness of weather derivatives as risk management tools for california specialty crop growers

sharing and cooperation in an experiment with heterogeneous groups abstract we investigate the impact of inequality on sharing and cooperation using a dictator game and a linear public good game where some participants work for their endowment workers while others do not non workers moreover we differentiate between two types of inequality namely in source and in level in contrast to most studies participants are fully informed about the endowment of the other players the key finding of our paper is that both sharing and cooperation critically depend on the source of the endowment in particular workers are more likely to share with other workers than with non workers and more inclined to contribute to the public good when grouped with other workers rather than when grouped with non workers considering also the choices made by non workers we argue that the worker premium in sharing and cooperation is based on fairness considerations rather than an in group bias adding inequality in the level of endowment reduces the importance of the source of endowment as driver of behavior this also suggests that reducing one layer of inequality may not improve cooperative behavior in society significantly implying that a big push policy tackling many dimensions of inequality at the same time may be required

evaluating price enhancement by processing cooperatives section 2 of the capper volstead act requires the secretary of agriculture to determine whether a cooperative has unduly enhanced its prices there has been no consensus about what level of price enhancement is too high this paper contrasts pricing of cooperative and proprietary brands of differentiated food products empirical evidence indicates that market share and advertising do not generally provide cooperatives any more power to enhance prices than they give proprietary firms the paper suggests a standard for undue price enhancement the predicted price level of proprietary brands in similarly structured markets

a market equilibrium analysis of the impact of risk on the u s rice industry an economic model of supply demand for u s rice suggests that increases in risk result in decreased acreage and increased marketing margins in a market equilibrium context the empirical results also suggest rice production and rice prices are more responsive to changes in risk faced by marketing firms than changes in risk faced by producing firms

optimal dynamic hedging decisions for grain producers the application of an optimal dynamic hedging model was explored for a county in north carolina corn yield harvest corn basis and december corn futures prices were forecast the forecasts were used to calculate optimal dynamic hedge positions when the hedge position was updated infrequently commissions were only slightly higher than commissions from a fixed hedge gains from updating the hedge position over the corn growing season were not substantial compared to a fixed hedge position

potential demand for drought insurance in burkina faso and its determinants the objectives of this paper are twofold a to estimate demand for formal drought insurance using farm household data in burkina faso and b to find what determines insurance demand the following findings are salient first effective demand is found in all zones which implies inadequacies in households current self insurance strategies second there is much heterogeneity in the strategies to self insure even within zones third the expectation of public food aid decreases demand for drought insurance which suggests that food aid is causing moral hazard fourth households with large livestock holdings can reduce the size of herd by substituting drought insurance for livestock holdings

information asymmetry as a reason for food industry vertical integration three trends that have been subject to recent discussion are a movement away from undifferentiated agricultural commodities toward more specialized products reduced reliance on open markets for raw agricultural products and a movement toward agricultural industrialization recent research suggests that demographic trends may be causing the first trend while the other two are closely related phenomena this research suggests that information externalities arising from uncertainty concerning the nature of food quality and problems in detecting quality may be reasons why vertical coordination is being used to circumvent the marketplace

production hedging and speculative decisions with options and futures markets this paper analyzes production hedging and speculative decisions when both futures and options can be used in an expected utility model of price and basis uncertainty when futures and option prices are unbiased optimal hedging requires only futures options are redundant options are used together with futures as speculative tools when market prices are perceived as biased straddles are used to speculate on beliefs about price volatility and to hedge the futures position used to speculate on beliefs about the expected value of the futures price mean variance analysis in general is not consistent with expected utility when options are allowed one extension of sandmo s expected utility model of the competitive firm under price uncertainty considers the use of futures or forward contracts danthine holthausen and feder just and schmitz show that without basis uncertainty the optimal output level is not affected by price risk also with an unbiased futures price the optimal hedging level of the competitive firm is the full hedge while a biased futures price will result in a partly speculative hedge related works include batlin who allows for basis risk in the form of imperfect time hedging paroush and wolf and antonovitz and nelson who consider basis risk with the simultaneous availability of futures and forward contracts grant honda losq newbery and stiglitz and rolfo who allow for production uncertainty chavas and pope who allow for production uncertainty and hedging costs and karp who considers the problem in a dynamic setting this paper provides a further extension of this analysis by allowing options as a means of coping with price risk with the introduction of commodity options on futures for many commodities in the 1980s this problem appears relevant to a number of production settings especially in agriculture specifically this paper considers the simultaneous choice of a production level and of hedging levels of futures and options within the general expected utility model the model allows for basis uncertainty but the production process is assumed to be nonstochastic

are harvest forecasts news usda announcements and futures market reactions futures market price data for maize and soyabeans are used to examine reactions to us department of agriculture harvest forecasts these forecasts are widely known and reasonably accurate so failure to find significant reaction would indicate that the usda did not contribute additional news relative to information already possessed by traders various t tests f tests and nonparametric chi square tests indicate rejection of the null hypothesis of no significant difference between means of absolute values or variances of changes in closing prices on days following a usda announcement and other days thus the data indicate that significant information is contained in the forecasts

broiler production contracts as a multi agent problem common risk incentives and heterogeneity the broiler industry presents two puzzles regarding production contracts why do processors control growers inputs and why do they use a statistically insufficient estimator to calculate growers compensation this paper provides an agency theoretic framework that explains these puzzles in terms of processors response to grower heterogeneity and production risk and to grower risk aversion processors control inputs to reduce the information rents paid to agents by forcing agents to bear additional income risk through the use of an imprecise estimator processors can increase profits due to the combined moral hazard adverse selection nature of the informational problem

the working curve and commodity storage under backwardation there remains controversy over whether the empirical curve relating intertemporal commodity price spreads and stocks originally drawn by holbrook working in 1933 i e the working curve is a valid stylized fact in commodity markets the core of the controversy is the portion of the curve representing commodity stocks under backwardation in this article we analyze the original data used by working plus more disaggregated numbers we find that the working curve is indeed valid the diversity of stockholders and different stockholding motives most likely explain the empirical working curve relationship

pricing commodity options when the underlying futures price exhibits time varying volatility standard commodity option pricing models assume proportional changes in the underlying futures price are i i d normal empirical evidence suggests commodity futures price movements exhibit excess kurtosis and time varying volatility this paper presents option pricing models when time varying volatility and excess kurtosis in the underlying futures price can be modeled as a garch process empirical results suggest that the garch option pricing model outperforms the standard black option pricing model which uses historical volatilities a closed form approximation model using a variance forecast generated from the estimated garch process also outperforms black s model and in many cases the general garch model as well

estimating the degree of market power in the beef packing industry a technique for assessing the degree of monopoly power developed by appelbaum 1979 1982 is extended here to permit measurement of monopsony power as well data from the u s beef packing industry are examined the results reveal small but statistically significant monopoly monopsony price distortions in slaughter cattle and wholesale beef markets but in spite of a recent trend toward heightened concentration in the industry give no indication that performance has become appreciably less competitive of late this abstract was borrowed from another version of this item

further toward a theory of agricultural insurance the economic theory of contracts is applied to agricultural insurance to show that given full information pareto optimal insurance contracts are actuarially fair provide full coverage and differ for each individual the information problems of moral hazard and adverse selection prevent pareto optimality from being attained several second best solutions to these problems are applied to agricultural insurance it is shown that information collection and the application of contract design principles are second best solutions which may achieve the benefits of insurance at less cost than the current practice of public subsidies in theory agricultural insurance is an efficient risk sharing mechanism in practice however agricultural insurance has been a costly means of transferring risk from farmers to governments and or other insurers to induce farmers to participate in agricultural insurance governments have borne significant subsidy costs hazell pomareda and valdes p 295 in a recent study ahsan ali and kurian aak concluded that public subsidies are necessary to make agricultural insurance viable they also showed that insurance will increase output relative to a case with no insurance thus insurance is beneficial particularly in less developed countries where increasing food supplies is a policy goal for this reason they concluded that public subsidization of insurance also is desirable their conclusions are derived from a simplified model of production with one output and one input in this article we consider a more general production model with multiple inputs and outputs we show that aak s conclusion about the benefits of insurance may not hold depending on the nature of the inputs and outputs as defined by the production function carl h nelson is an assistant professor of agricultural economics

composite forecasting an application with u s hog prices producers processors and distributors of agricultural commodities make decisions in a risky environment uncertain production and relatively low price elasticities of demand provide the setting for rather large fluctuations in commodity prices sensible decision making thus requires information about the likelihood of many alternative outcomes such information can be obtained from both private and public sources through price forecasts decision makers often have several forecasts on

international comparisons of cattle cycles the time series properties of cattle production in three countries with different technologies argentina the united states and uruguay are studied in order to shed light on the role of technology in the dynamics of the cattle sector four series are analyzed for each country slaughter price stock of cows and total herd spectral decomposition of the time series shows the existence of cycles having surprising regularity for all the four time series the three countries exhibit very similar cyclicities in spite of their different technologies and economic environment

nonlinear dynamics of daily cash prices daily cash price changes are not normally distributed their empirical distributions have fat tails and most are skewed in addition they are not independent among the diffusion jump extended generalized autoregressive conditional heteroskedasticity garch and deterministic chaos processes a garch process with residuals following a student distribution is the most likely our garch model reduces leptokurtosis removes nonlinear dependence and provides a considerable improvement over the i i d normal model the garch process is not well calibrated because it cannot explain all the observed nonnormality but it does yield asymptotically valid hypothesis tests

reputation and uncertainty toward an explanation of quality problems in competitive ldc markets abstract this paper attempts to explain the puzzle of low and variable product qualities in seemingly competitive ldc markets it shows that the cost of overcoming quality moral hazard through seller reputation rises with the rate of interest the rate of seller turnover the amplitude of idiosyncratic cost fluctuations and the relative scarcity of exogenous entry costs since markets with a multiplicity of small producers are more likely to have these characteristics they are more susceptible to suffering from quality problems the model developed here in particular highlights the role of cost variations in impeding the function of reputation in markets with moral hazard and adverse selection the derived conditions for the persistence of quality problems contribute to the explanation of quality differences between similar markets in developed and less developed countries

demand for farm output in a complete system of demand functions demand interrelationships for farm outputs that are theoretically consistent with consumer demand and marketing group behavior provide important linkages between retail and farm prices a conceptual model based on reduced form specifications for retail and farm prices is formulated and applied empirically to a set of eight disaggregated food commodities this approach circumvents the need for retail quantities which are frequently unavailable for disaggregated food commodities the results are consistent with theory and generally indicate significant substitution between farm and marketing inputs except for poultry derived demand elasticities are at least 40 larger compared to those derived assuming fixed proportions

insurability and moral hazard in agricultural insurance markets pareto optimal and constrained pareto optimal all risk insurance contracts are studied conditions required for emergence of competitive insurance markets are isolated and discussed full insurance contracts are shown to be dominated by contracts involving coinsurance and deductibles if insurers are pseudo risk averse the effect of moral hazard on all risk agricultural insurance indemnity schedules is examined results for indemnity schedules under moral hazard and constant absolute risk aversion show that providing farmers with the incentives to take appropriate actions may imply lower deductibles in the presence of moral hazard than in the absence of moral hazard

pricing weather insurance with a random strike price the ontario ice wine harvest weather insurance within the agricultural sector has been limited by the difficulty in defining the appropriate weather event and in pricing the product we develop a new pricing method for weather insurance under situations where returns depend not only on the occurrence of the weather event but also its timing the method is used to price weather insurance for ice wine because the harvest quantity of grapes for ice wine degrades over time the strike value on the weather event measured as harvestable hours is random we develop a monte carlo method to estimate the premium

marketing margins market power and price uncertainty this paper provides a conceptual and empirical framework for analyzing marketing margins in a noncompetitive food processing industry facing output price uncertainty the framework allows the decomposition of observed margins into components reflecting the marginal cost of the processing industry oligopoly oligopsony price distortions and an output price risk component the empirical procedure is applied to a time series of spreads between wholesale pork prices and farm prices of market hogs the principal finding is that while farm wholesale margins are more consistent with competitive performance now than they were fifteen years ago the output price risk component persisted throughout the sample period

the economic value of minimum variance hedges the present article examines the potential economic gains from better minimum variance hedge mvh estimates focusing on the assumptions that yield mvhs consistent with expected utility maximization it is found that the economic value of better mvh estimates is negligible and that optimal hedges are substantially different from mvhs when the usual mvh restrictions are relaxed among other things findings suggest that the hedging research s recent emphasis on better mvhs has been a waste of resources investigating the consequences of relaxing the standard mvh assumptions seems to be much more important than recent literature contributions

unequal opportunities and distributive justice abstract we provide experimental evidence on how unequal access to performance enhancing education affects demand for redistribution people earn money in a real effort experiment and can then decide how to distribute it among themselves and another subjects we compare situations in which randomly chosen people get access to performance enhancing education with situations in which either only luck or only performance determines outcome we find that unequal opportunities evoke a preference for redistribution that is comparable to the situation when luck alone determines the allocation however people with unequal access to education are more likely to disagree about the appropriate distribution

collective marketing arrangements for geographically differentiated agricultural products welfare impacts and policy implications this paper examines the incentive of atomistic agricultural producers within a specific geographical region to differentiate and collectively market products we develop a model that allows us to analyze the market and welfare effects of the main types of real world producer organizations using it to derive economic insights regarding the circumstances under which these organizations will evolve and describing implications of the results obtained in the context of an ongoing debate between the european union and united states as the anticipated fixed costs of development and marketing increase and the anticipated size of the market falls it becomes essential to increase the ability of the producer organization to control supply in order to ensure the coverage of fixed costs whenever a collective organization allows a market with a new product to exist that otherwise would not have existed there is an increase in societal welfare counterintuitively stronger property right protection for producer organizations may be welfare enhancing even after a differentiated product has been developed the reason for this somewhat paradoxical result is that legislation aimed at curtailing the market power of producer organizations may induce large technological distortions

systemic risk reinsurance and the failure of crop insurance markets without affordable reinsurance private crop insurance markets are doomed to fail because systemic weather effects induce high correlation among farm level yields defeating insurer efforts to pool risks across farms using an empirical model of the u s crop insurance market we find that u s crop insurer portfolios are twenty to fifty times riskier than they would be otherwise if yields were stochastically independent across farms we also find that area yield reinsurance contracts would enable crop insurers to cover most of their systemic crop loss risk reducing their risk exposure to levels typically experienced by more conventional property liability insurers copyright 1997 oxford university press

spatial market integration in the presence of threshold effects a large body of research has evaluated price linkages in spatially separate markets much recent research has applied models appropriate for nonstationary data such analyses have been criticized for their ignorance of transactions costs which may inhibit price adjustments and thus affect tests of integration this analysis utilizes threshold autoregression and cointegration models to account for a neutral band representing transactions costs we evaluate daily price linkages among four corn and four soybean markets in north carolina nonlinear impulse response functions are used to investigate dynamic patterns of adjustments to shocks our results confirm the presence of thresholds and indicate strong support for market integration though adjustments following shocks may take many days to be complete in every case the threshold models suggest much faster adjustments in response to deviations from equilibrium than is the case when threshold behavior is ignored a large amount of empirical research has evaluated the extent to which spatially separate markets are integrated though the term is used loosely in the literature tests of market integration usually consider the extent to which shocks are transmitted among spatially separate markets the integration of markets can have important implications for price discovery and the operation of the market since persistent deviations from integration may imply riskless profit opportunities for spatial traders

the welfare implications of minimum quality standards previous analysis of the social welfare implications of minimum quality standards has yielded no decisive results in this paper the specific nature of consumer and producer responses to quality standards is incorporated into the analysis both consumer and producer gains are shown to be impossible when consumers can perceive quality before purchase even if low quality produce is diverted to secondary markets standards unambiguously reduce net social benefits the paper explores the possibility that minimum quality standards are a form of rent seeking behavior