animal breeding and productivity growth of dairy farms we introduce genetic based technical change into a malmquist productivity index and measure the growth in productivity caused by bovine breeding because breeding is likely to affect milk quality we adjust milk quantities for quality differences we use panel data on icelandic dairy farms from 1997 to 2006 to estimate an input distance function the malmquist productivity index shows that the average productivity growth rate is 1 6 scale effects are the most important source of this growth but 19 of the productivity growth rate is due to breeding if quality differences are ignored the average productivity growth rate is reduced by 83

direct versus implicit superlative index number formulae economists and statisticians who construct estimates of total factor productivity or who estimate production functions or systems of consumer demand functions are often forced to aggregate subsets of their data in order to perform this aggregation an index number formula is generally used a price index p po pl x xi is defined to be a function p of the prices of the n commodities to be aggregated in periods 0 and 1 p pll pno and pl pl pn respectively and of the corresponding quantities utilized during periods 0 and 1 x xi xno andx1 xi xn1 respectively a quantity index q p0 pl x xl is defined to be another function q of the price and quantity vectors for the two periods generally we assume that p and q satisfy fisher s 1922 weak factor reversal test

stochastic production and heterogeneous risk preferences commercial fishers gear choices we present a model of fishers gear choice which allows for heterogeneity both in production technology and risk preferences and apply it on a panel of swedish trawlers stochastic revenue functions are estimated and used to predict the mean and standard deviation of revenue for each trip in a random parameters logit model we test if these predicted values explain gear choice a majority of fishers respond positively to increased mean and negatively to increased variability of expected landing values indicating risk aversion but also show a strong tendency to choose the same gear used on the previous trip

a negative equilibrium interest rate the average after tax real interest rate on u s t bills and the average rate of return on long term government bonds ltgb have been negative over the past 75 years is this negative rate an equilibrium phenomenon or simply an empirical fluke we show that a negative equilibrium interest rate is possible and that the wealthier the nation is the more negative the equilibrium interest rate can be this phenomenon results from a positive inflation rate and taxation of nominal profits and it cannot hold in a period of zero inflation or in a period of deflation a positive demand for t bills and for ltgb exists also in a portfolio framework even when these two assets are characterized by a negative expected rate of return and other risky assets are yielding positive expected returns

cost function estimation under risk aversion standard definitions of the cost function do not admit risk standard ex post approaches to cost function estimation yield biased and inconsistent estimates when production is stochastic recently an ex ante approach to cost function estimation with stochastic production has been developed by imbedding the distance function in the cost function estimation problem we generalize the approach to consider risk aversion in decision making only two empirical studies have considered stochastic production in cost function estimation both have required constant returns to scale we demonstrate a methodology sufficiently general to consider nonconstant returns to scale

enterprise diversification in us dairy impact of risk preferences on scale and scope economies enterprise diversification has recently become a prominent feature of us dairy farms scope economies and risk aversion are two forces that simultaneously determine diversification we jointly estimate scope economies and determine risk preferences under price uncertainty we reject risk neutrality in favour of increasing absolute risk aversion iara and increasing relative risk aversion irra scope economies are significant but diminish with farm size increasing returns to scale exist in the production of multiple enterprises and diminish with size large farms operate under decreasing returns to scale ignoring risk preferences a common practice in empirical work results in an underestimate of the effect of scope economies for large farms

the economic costs of environmental regulation in u s dairy farming a directional distance function approach analyses of the costs of regulating greenhouse gas emissions from dairy production which could be used to assess the effectiveness of alternative policy measures is a missing link in the literature this article addresses this gap by establishing the economic impact associated with a hypothetical greenhouse gas environmental regulatory regime across major dairy producing counties in the united states in doing so the article makes three important contributions to the literature first it develops a comprehensive pollution index based on environmental protection agency methodologies which contrasts with previous studies that rely on partial measures based only on surplus nitrogen stemming from the over application of fertilizer second the article uses a directional output distance function an approach that has not been employed previously to evaluate polluting technologies in the u s dairy sector third the article incorporates a four way error approach that accounts for unobserved county heterogeneity time invariant persistent technical efficiency time varying transient technical efficiency and a random error the results indicate that regulating greenhouse gas emissions from dairy farming would induce a 5 percentage point increase in average technical efficiency in addition the economic costs of implementing this hypothetical regulatory framework exhibit significant spatial variation across counties in the united states

parametric efficiency tests economies of scale and input demand in u s electric power generation duality theory has been applied increasingly in recent years to study the structure of production a major advantage of using duality theory is that systems of input demand equations can be derived by simple differentiation facilitating the use of flexible functional forms also use of duality theory makes it possible to choose a representation of the technology which has desirable properties for estimation such as exogeneity of the regressors however the use of a dual representation of production structure is appropriate only if the corresponding maintained hypothesis concerning economic behavior e g cost minimization or profit maximization is valid the perceived advantages of the dual approach to studying production structure have led to some applications in which the maintained hypothesis concerning economic behavior is unlikely to be appropriate for example neoclassical cost functions have been used to study the characteristics of production in regulated industries despite an extensive theoretical literature indicating that a profit maximizing regulated firm would not minimize costs subject to market prices 2 in this paper we propose a generalized cost function that retains the principal advantages of the neoclassical cost function but does not require that cost minimization subject to market prices be imposed as a maintained hypothesis in our model firms are assumed to base their production decisions on unobservable shadow prices which reflect the effects of regulation on the effective prices of inputs parametric tests for cost minimization are obtained by expressing shadow prices as functions of market prices the generalized cost function is estimated with data for regulated electric utilities the parametric restrictions corresponding to cost minimizing behavior subject to market prices are rejected implying that the use of a neoclassical cost function is not appropriate in this application 3

education experience and allocative efficiency a dual approach a generalization of the dual non frontier profit function approach to evaluating allocative efficiency is developed that allows for training human capital variables to influence the efficiency level directly an application to pennsylvania dairy indicates that education and experience are substitutes and play a significant role in the level of efficiency while these operators are not allocating their variable inputs in an absolutely efficient manner relative efficiency can be achieved for four of six possible input combinations for prescribed levels of education and experience furthermore the estimates of the efficiency measures suggest that these operators are maximizing production rather than short run profits

diseconomies of size with fixed managerial ability managerial ability has important implications for farm growth in this article we first show in a production model that increasing output with a fixed level of managerial ability can lead to a decrease in profits next we discuss the effect that managerial ability has on economies of size in the empirical part economies of size are estimated for a sample of dairy farms using a proxy for managerial ability which is calculated as a technical efficiency index the results show that increasing farm size while holding managerial ability constant can be an important source of diseconomies of size copyright 2003 oxford university press

a study of bank efficiency taking into account risk preferences abstract i use the stochastic cost frontier approach to investigate efficiency of banks operating in the third federal reserve district accounting for the quality and riskiness of bank output in addition to the mean and mode of the conditional distribution of the one sided error term i calculate confidence intervals for the inefficiency measures based on the conditional distribution the results indicate that third district banks are operating at cost efficient output levels and product mixes but are not efficiently using their inputs the second part of the article relates the inefficiency measures to several correlates

innovation and performance evidence at micro level this empirical study aims to shed light on the link between innovation and economic performance at micro level based on a comprehensive survey among dairy and crop farms in the netherlands we estimate a structural multi stage model to deliver evidence on the effect of engagement and investment in innovation on the production of product process and organizational or marketing innovations as well as on the effect of such innovations on farm level productivity the results suggest various market and farm behaviour related factors to stimulate an increase in innovation engagement and production furthermore the study reveals that indeed a greater innovation investment per unit innovation input leads to a higher probability of producing at least one successful product process and or organizational or marketing innovation innovation output the production of process and organizational or marketing related innovation leads to significant productivity gains various recommendations towards a more effective and efficient innovation policy are finally given

traditional and nontraditional banking an information theoretic approach abstract this paper uses a multiproduct approach to analyze the costs of a sample of large banks where bank outputs are measured to account for the different types of information produced by banks diseconomies of scope are found between traditional banking activities of originating and monitoring loans and nontraditional activities of loan selling and buying this suggests maintaining fire walls between commercial bank functions and investment bank functions after the glass steagall act is repealed will not sacrifice joint production economies it also suggests that arguments for repeal of the act based on the existence of such economies are ill founded

on the nature and magnitude of cost economies in hog production in this article we assess the impact of farm size on production cost and evaluate the marginal costs and margins by considering that input prices may change with the scale of production by using french hog farm data we estimate a system of equations including a feed price function input demand functions and an output supply function based on a technology approximated by a combined generalized leontief quadratic form our results suggest that the marginal costs are over estimated when the adjustment of the feed unit prices to a change in farm size is not controlled for more specifically the cost economies for large farms enjoying the highest profits arise primarily from lower feed prices with technological scale economies having little impact in contrast farms with no hired labor exhibit technological scale economies and reach higher price cost margins compared to larger farms

what floats your boat preference revelation from lotteries over complex goods abstract we examine a type of lottery used to distribute some publicly held resource access rights the lottery provides participants with the opportunity to choose among a set of simple gambles over multi attribute goods participant choices result in an endogenous distribution of success rates over gambles that reflects tradeoffs between the relative desirability of the available goods and the probability of winning when lottery winnings are multi attribute goods lottery outcomes provide sufficient information to estimate hedonic prices marginal utility and marginal rates of substitution among attributes we develop a model for characterizing preferences from this information set we apply our model to idaho s four rivers whitewater recreation lottery which allows applicants to apply for one permit among a large set of alternative river day combinations that provide varying river and weather characteristics this lottery structure shows promise as a foundation for economic experiments for preference revelation

full world versus empty world paradigm at the time of globalisation abstract the mediterranean region is characterised by a high diversity mainly due to the integration between natural land heterogeneity and human stewardship processes cultural landscapes are the results of such coevolutive processes a better understanding of the mechanisms that have assured along the millennia the maintenance of biological as well as ecological processes seems of extreme importance for our future survival in north america a frontier mentality persists in the cultural mindset and rich biodiversity is associated only with remote areas reflecting a model of an empty world in which human development is completely isolated from the natural wild processes this vision is in contrast with the full world vision of the mediterranean dwellings plasticity adaptation to disturbance and the persisting of biological refugia can be considered the most relevant factors responsible for the mediterranean dynamics these factors are rare or impossible to find in the north america context from which the dominance of the economic capital over the natural and cultural ones is a very popular model exported worldwide in this commentary the full world paradigm is presented as an extension of the concept of resilience and ascendancy to propose a new grammar that incorporates self organisation of natural and human dominated systems into a process of diffuse globalisation of economics and human behaviour

a cost approach to economic analysis under state contingent production uncertainty this article explores the economics of input decision under production uncertainty the article develops a methodology to specify and estimate cost minimizing input decisions under a state contingent technology the analysis is applied to time series data on u s agriculture it finds strong empirical evidence that expected output alone does not provide an appropriate representation of production uncertainty the results provide empirical support for an output cubical technology this indicates that an ex post analysis of stochastic technology appears appropriate the analysis also provides evidence that the cost of facing production risk has declined in u s agriculture over the last few decades copyright 2008 oxford university press

the effect of temporal risk aversion on optimal consumption the equity premium and the equilibrium interest rate this paper demonstrates that temporal risk aversion makes smoothing consumption over time less attractive while the usual risk aversion makes it more attractive as temporal risk aversion increases the equilibrium interest rate decreases and the equity premium increases this paper also shows a striking and novel result that an increase in time impatience can lead to either a decrease or an increase in the interest rate depending on the nature of the nonseparability

scale economies and inefficiency of u s dairy farms this study employs data drawn from the 2000 agricultural resource management survey a u s department of agriculture sponsored farmers survey the article estimates returns to scale relationships across dairy farms of different sizes and across different regions incorporating variables hypothesized to influence farm performance results point to significant scale economies in u s dairy farms and underscore the importance of taking account of inefficiency when estimating scale economies contrary to previous research the preferred cost function specification does not show a region of decreasing returns to scale this finding helps explain why the average size of dairy farms has been increasing

globalisation and sustainability environmental kuznets curve and the wto abstract economic globalisation is seen by many as a driving force for global economic growth yet opinion is divided about the benefits of this process as highlighted by the wto meeting in seattle in late 1999 proponents of economic globalisation view it as a positive force for environmental improvement and as a major factor increasing the likelihood of sustainable development through its likely boost to global investment these proponents mostly appeal to analysis based on the environmental kuznets curve ekc to support their views about environmental improvement but ekc analysis has significant deficiencies furthermore it is impossible to be confident that the process of economic globalisation will result in sustainable development if weak conditions only are satisfied strong conditions probably need to be satisfied to achieve sustainable development and given current global institutional arrangements these are likely to be violated by the economic globalisation process global political action seems to be needed to avert a deterioration in the global environment and to prevent unsustainability of development this exposition demonstrates the limitations of ekc analysis identifies positive and negative effects of economic globalisation on pollution levels and highlights connections between globalisation and the debate about whether strong or weak conditions are required for sustainable development the article concludes with a short discussion of the position of wto in relation to trade and the environment and the seemingly de facto endorsement of wto of weak conditions for sustainable development it suggests that wto s relative neglect of environmental concerns is no longer politically tenable and needs to be reassessed in the light of recent developments in economic analysis the skew of economic growth e g in favour of developing countries is shown to be extremely important from a global environmental perspective

off farm work and technical efficiency on u s dairies in this study we investigate the impact of an increase in farm households off farm work on technical efficiency te of u s dairies we present a theoretical framework that implies that an increase in farm household off farm work decreases te we use two nationally representative samples of u s dairies 2010 and 2005 agricultural resource management surveys and a parametric approach stochastic frontier analysis to empirically test the hypothesis results are generally consistent with the hypothesis and show that an increase in off farm work by the farm household is associated with a significant decrease in te in addition results show that there is a statistically significant difference in te between small medium and large farms small farms are associated with significantly higher off farm work and have lower te than large farms which implies that less off farm work by households with larger farms is at least partially responsible for the evidence of economies of scale in the u s dairy industry

risk aversion and price risk in duality models of production a linear mean variance approach a duality model of production is developed that permits risk aversion and price uncertainty the linear mean variance framework employed is tractable for empirical research in contrast to duality models of risk based on a generalized expected utility function the framework is more general than in standard price certainty models while retaining the simplicity needed for empirical research

risk aversion and yield uncertainty in duality models of production a mean variance approach a duality model of production is developed that endogenizes stochastic output decisions under risk aversion the model incorporates both yield and price uncertainty and nonlinear mean variance risk preferences this permits modeling of the firm s expected output supply and input demand decisions under risk and also in principle the firm s output variance decisions the duality model is tractable for empirical research

estimating economies of scope and scale under price risk and risk aversion this study uses duality to examine the effects of excluding output price risk and risk aversion on cost structures using data for kansas wheat and beef cow operations a dual risk model was used to determine multi product and product specific scale economies and economies of scope estimates for these measures were compared with those obtained from a deterministic model the results show that product specific scale economies are over estimated and economies of scope and multi product scale economies are under estimated for the deterministic model compared to the risk model

off farm labour and the structure of us agriculture the case of corn soybean farms while the growing importance of off farm earnings suggests large benefits accrue to farmers from efforts to expand off farm income opportunities economic well being also depends on greater efficiency to comprehensively gauge the economic health of farm operator households off farm income is interpreted as an output along with corn soybeans livestock and other crops to accomplish this task two related methodologies were used first using 2000 data a multi activity cost function was set up to analyse labour allocation decisions within the farm operator household and also to estimate returns to scale and scope second using 1996 2000 data an input distance function approach was followed to estimate returns to scale cost economies and technical efficiency and the relative performance of farm operator households with and without off farm wages and salaries compared the cost function and input distance function results both suggest that off farm outputs and inputs can be modelled in a multi activi

a fourier analysis of the us dairy industry measurement of economies of scale and scope is particularly important for predicting growth and product diversification however estimates are useful only to the extent the underlying production technology is modelled accurately this study measures economies of scale and scope in the rapidly changing us dairy industry with a fourier flexible cost function which provides a global approximation of the unknown function we use the high quality national agricultural and resource management survey arms survey data we find economies of scale at most firm sizes and persistent economies of scope across firm sizes in this industry which is counter to estimates from two diewert flexible functional forms

can the small dairy farm remain competitive in us agriculture smaller dairy farms in the us are observed to have higher costs than larger farms and whether those higher costs are due to technology or inefficiency has implications for policy to address the small farm if high cost of production on smaller farms is due to a higher cost frontier then to make small farms competitive would require research to devise and design technology that is suitable for small farms if instead high cost is due to inefficiency then educational approaches are needed to ensure small dairy farms use technology efficiently to determine the cause of higher costs on small farms the cost of milk production by farm size was decomposed into frontier and efficiency components with a stochastic cost curve using data on usa dairy farms although the frontier cost of production decreases with farm size that cost reduction is not as pronounced as a cost curve that includes inefficiency the higher cost of production on many smaller farms is caused by inefficiency rather than technology

differential uncertainties and risk attitudes between conventional and organic producers the case of spanish arable crop farmers the growing importance of economic factors in farmers decision to go organic has raised interest in characterizing the economic behavior of organic versus conventional farms published analyses so far have not considered differential uncertainties and farmers risk preferences between conventional and organic practices when comparing these techniques our article attempts to assess this issue we use a model of farmer decision under risk to analyze the differential values between spanish cop organic and conventional farms and to assess the incentives for adoption of organic practices results show that organic and conventional farms do have different abilities to control production risk as well as different risk preferences organic price premiums and subsidies are found to be powerful instruments to motivate adoption of organic techniques

fdi performance a stochastic frontier analysis of location and variance determinants the opening up process of the eastern european countries was marked by greater integration of fdi with their western neighbouring countries using the single step ml approach to stochastic frontier analysis the location and variance determinants of fdi are estimated using the knowledge capital kk model framework the findings based on a panel of bilateral fdi stocks from 10 western to 10 eastern european countries over the 1996 2007 period suggest fdi is determined by both horizontal and vertical motives while the process of liberalization and infrastructural developments significantly reduces the variance of fdi in using a stochastic frontier specification of the kk model the efficiency of fdi performance is identified relative to maximum levels the bilateral efficiency scores suggest a mixed performance indicating scope to improve the efficiency of fdi

rotating savings and credit associations when participants are risk averse we model rotating savings and credit associations roscas among risk averse participants who experience privately observed income shocks a random rosca is not advantageous whereas a bidding rosca is if temporal risk aversion is less pronounced than static risk aversion the payoff scheme of a bidding rosca facilitates risk sharing in the presence of information asymmetries the risk sharing performance of a simple arrangement where a group of homogenous individuals runs several bidding roscas simultaneously is as good as that of a linear risk sharing contract and is more enforceable because it carries a fixed rather than a variable contribution

an examination of the effect of ownership on the relative efficiency of public and private water utilities the behavior of privately and publicly owned water utilities is examined by estimating a generalized variable cost function containing the regular characteristics of the neoclassical cost function without requiring that cost minimization subject to market prices be imposed as a maintained hypothesis assuming that unobserved shadow prices reflect the regulatory environment of the water industry tests for cost minimization are obtained by deriving shadow prices as functions of market prices the empirical results provide evidence that public water utilities are more efficient than private utilities on average but are more widely dispersed between best and worst practice

on the determinants of corporate hedging finance theory indicates that hedging increases firm value by reducing expected taxes expected costs of financial distress or other agency costs this paper provides evidence on these hypotheses using survey data on firm s use of forwards futures swaps and options combined with computstat data on firm characteristics of 169 firms in the sample 104 firms use hedging instruments in 1986 the data suggest that firms which hedge face more convex tax functions have less coverage of fixed claims are larger have more growth options in their investment opportunity set and employ fewer hedging substitutes

short run returns to scale farm size and economic efficiency this paper analyzes the effects of returns to scale farm size technical allocative and scale inefficiencies on the profitability of utah dairy farms it derives the conditions necessary to compare the profitability of farms within and between different size classifications as small medium and large some comparative static results regarding increases in input prices and a decrease or withdrawal of price support on profitability of small medium and large farms are presented copyright 1993 by mit press