limit cycles in intertemporal adjustment models theory and applications this paper starts from well behaved i e concave one state variable optimal control models the crucial feature is that indigenous growth is present the replacement of the control by an adjustment process and presumably penalizing these adjustments may convert stable and only stable fixed point equilibria into limit cycles indeed given positive growth and proper externalities such that discounting exceeds growth one can generate stable limit cycles with ease e g for a separable framework examples from such diverse fields as renewable resources optimal saving and public choice highlight the economic applicability

a model of entry exit decisions and capacity choice under demand uncertainty abstract many investment decisions of agribusiness firms such as when to invest in an emerging market or whether to expand the capacity of the firm involve irreversible investment and uncertainty about demand cost or competition this paper uses an option value model to examine the factors affecting an agribusiness firm s decision whether and how much to invest in an emerging market under demand uncertainty demand uncertainty and irreversibility of investment make investment less desirable than the net present value npv rule indicates the inactive firm is more reluctant to enter the market when it takes into account demand uncertainty because it preserves the opportunity of making a better investment later the active firm is more reluctant to abandon the investment because there is an option value of keeping the operation alive there is a greater distance between the entry and exit thresholds under the option value approach than under the npv rule due to demand uncertainty the results have implications for agribusiness decision making

higher us crop prices trigger little area expansion so marginal land for biofuel crops is limited abstract by expanding energy biomass production on marginal lands that are not currently used for crops food prices increase and indirect climate change effects can be mitigated studies of the availability of marginal lands for dedicated bioenergy crops have focused on biophysical land traits ignoring the human role in decisions to convert marginal land to bioenergy crops recent history offers insights about farmer willingness to put non crop land into crop production the 2006 09 leap in field crop prices and the attendant 64 gain in typical profitability led to only a 2 increase in crop planted area mostly in the prairie states at this rate a doubling of expected profitability from biomass crops would expand cropland supply by only 3 2 yet targets for cellulosic ethanol production in the us energy independence and security act imply boosting us planted area by 10 or more with perennial biomass crops given landowner reluctance to expand crop area with familiar crops in the short run large scale expansion of the area in dedicated bioenergy crops will likely be difficult and costly to achieve

bioenergy crop production in the united states potential quantities land use changes and economic impacts on the agricultural sector the u s departments of agriculture and energyjointly analyzed the economic potential for and impacts of large scale bioenergy cropproduction in the united states anagricultural sector model polysys wasmodified to include three potential bioenergycrops switchgrass hybrid poplar and willow at farmgate prices of us 2 44 gj anestimated 17 million hectares of bioenergycrops annually yielding 171 million dry mg ofbiomass could potentially be produced at aprofit greater than existing agricultural usesfor the land the estimate assumes highproductivity management practices are permittedon conservation reserve program lands traditional crops prices are estimated toincrease 9 to 14 percent above baseline pricesand farm income increases annually by us 6 0billion above baseline at farmgate prices of us 1 83 gj anestimated 7 9 million hectares of bioenergycrops annually yielding 55 million dry mg ofbiomass could potentially be produced at aprofit greater than existing agricultural usesfor the land the estimate assumes managementpractices intended to achieve highenvironmental benefits on conservation reserveprogram lands traditional crops prices areestimated to increase 4 to 9 percent abovebaseline prices and farm income increasesannually by us 2 8 billion above baseline

a spatial econometric approach to the economics of site specific nitrogen management in corn production the objective of this study is to determine the potential for using spatial econometric analysis of combine yield monitor data to estimate the site specific crop response functions the specific case study is for site specific nitrogen n application to corn production in argentina spatial structure of the yield data is modeled with landscape variables spatially autoregressive error and groupwise heteroskedasticity results suggest that n response differs by landscape position and that site specific application may be modestly profitable profitability depends on the model specification used with all spatial models consistently indicating profitability whereas the nonspatial models do not

steady state properties of multi state economic models a simple method to derive optimal steady states of multi state dynamic economic systems with minimal assumptions on the underlying processes is developed this is accomplished by an n dimensional function defined over the n dimensional state space in terms of the model s primitives the location and stability properties of optimal steady state candidates are characterized by the roots and derivatives of this function a resource management example illustrates the simplicity and applicability of the method

a rational eating model of binges diets and obesity this paper addresses the rapid diffusion of obesity and the existence of different individual patterns of food consumption between non dieters and chronic dieters i propose a rational eating model where a forward looking agent optimizes the intertemporal satisfaction from eating taking into account the cost of changing consumption habits and the negative health consequences of having a non optimal body weight consistent with the evidence i show that the intertemporal maximization problem leads to a condition of overweightness and that heterogeneity in the individual relevance of habits in consumption can determine the observed differences in the individual intertemporal patterns of food consumption and body weight sufficient conditions for determining when the convergence to the steady state implies oscillations or is monotonic are given in the former case the agent optimally alternates diets and binges until the steady state is reached in the latter a regular intertemporal pattern of food consumption is optimal

rebound effects of new irrigation technologies the role of water rights we study how institutions such as water rights can complement new irrigation technologies in promoting the sustainability of u s agriculture using data from the ogallala high plains aquifer region of kansas we find that water extraction moderately increases after adopting low energy precise application lepa irrigation and this rebound effect is in general higher for farmers with larger water rights about half of the lepa s rebound effects arise because adopters tend to irrigate more land and grow more water intensive crops with the remaining half attributable to more intensive irrigation farmers with greater water rights use more water with two thirds of the effects arising from irrigating larger land areas and one third of the effects attributable to more intensive irrigation a 10 reduction of water rights will reduce water use by 5 in the long run and if the reduction targets the majority of the water rights which lie between 100 and 500 af lepa s rebound effect decreases by 15 4 finally we find that farmers have an incentive to apply a small amount of water in order to preserve their water rights but the associated water waste is insignificant

why present oriented societies undergo cycles of drug epidemics musto the american disease yale university press new homen 1987 hypothesizes that cycles of drug use arise when the current generation of youth no longer remembers the adverse experiences of their forebears this paper underlines this hypothesis through the results of an optimal control model of drug epidemics that incorporates an endogenous initiation function models the reputation of a drug as being determined by memories of past use and finds the optimal drug treatment strategy interestingly unless the societal discount rate is quite low if memories of past users decay moderately quickly the optimal strategy is cyclic hence not only do we find that those who forget the past are condemned to repeat it but also that for those who forget the past and over value the present it may even be optimal to have their future recreate the past these findings are illustrated by numerical analysis based on empirical data from the current us cocaine epidemic

capital mobility and the current account abstract this paper analyzes the effect of unanticipated changes in the terms of trade on consumption expenditures and the current account in a small open economy simple formulas are obtained for the covariances of changes in consumption expenditures the current account and the expected current account with changes in the terms of trade it is shown that if investment is uncorrelated with the terms of trade a necessary condition for unanticipated changes in the terms of trade to be correlated with changes in consumption expenditures and the expected current account is that the real expected return on foreign bonds differs from the real expected return on domestic bonds

investment in site specific crop management under uncertainty implications for nitrogen pollution control and environmental policy this paper applies an option pricing model to analyze the impact of uncertainty about output prices and expectations of declining fixed costs on the optimal timing of investment in site specific crop management sscm it also analyzes the extent to which the level of spatial variability in soil conditions can mitigate the value of waiting to invest in sscm and influence the optimal timing of adoption and create a preference for custom hiring rather than owner purchase of equipment numerical simulations show that while the net present value npv rule predicts that immediate adoption is profitable under most of the soil conditions considered here recognition of the option value of investment indicates that it is preferable to delay investment in sscm for at least 3 years unless average soil quality is high and the variability in soil quality and fertility is high the use of the option value approach reveals that the value of waiting to invest in sscm raises the cost share subsidy rates required to induce immediate adoption above the levels indicated by the npv rule

coping with multiple catastrophic threats we study intertemporal policies for dealing with multiple catastrophic threats with endogenous hazards allowing inter alia for gradual mitigation efforts that accumulate to reduce occurrence risks the long run properties of the optimal policies are characterized in terms of the key parameters damage hazard sensitivity and natural degradation rate associated with each type of catastrophic threat effects of background threats on the optimal response to a potential catastrophe are illustrated numerically

equilibrium cycling with small discounting abstract a misinterpretation of turnpike theorems suggests that persistent cyclic behavior in optimal growth models is only possible with large discount rates this paper shows that for any positive discount rate there exists a large family of standard cobb douglas technologies with three sectors which have optimal growth paths of persistent cycles

aggregate spending and the terms of trade is there a laursen metzler effect this paper investigates the spending and current account effects of terms of trade shifts in a model where households maximize utility over an infinite planning period in the framework developed here an economy specialized in production must experience a fall in aggregate spending and a current surplus as a result of an unanticipated permanent worsening in its terms of trade the paper s model thus provides a setting in which the current account deficit predicted by laursen and metzier harberger and others fails to materialize

optimal control of irrigation scheduling using a random time frame a dynamic programming model of irrigation scheduling is developed which accounts for stochastic weather conditions results in simple irrigation decision rules and can be operated on current microcomputers the model employs heat unit intervals instead of chronological time to define the dynamic equations of the crop soil system procedures are outlined for estimating the transition probabilities of climate within the heat unit intervals when compared to maximum yield irrigation scheduling the model increases net returns of corn sorghum and cotton by 10 00 to 30 00 per acre

sustainable growth renewable resources and pollution thresholds and cycles abstract ayong le kama j econ dyn control 25 2001 1911 combines within an interesting model optimal saving a la ramsey with optimal intertemporal renewable resource use a la berck j environ econ manage 11 1981 101 this note draws attention to two possible outcomes thresholds and limit cycles that are overlooked in ayong le kama but also in other recent works and that are quite important in this context

policy incentives for switchgrass production using valuation of non market ecosystem services abstract this study presents a linear profit model with combined economic and environmental factors for a switchgrass for biofuels agricultural system in the southeastern u s the objectives are to establish conversion to switchgrass thresholds for various market prices and identify policy incentives that would ensure economic profit while also maximizing environmental benefits carbon sequestration displacement of fossil fuels and minimizing negative impacts global warming potential nitrate loss weighting factors are chosen to represent incentives and penalties by assigning value to the impacts with no other incentives switchgrass market prices of at least 51 and 58 dton would be needed in order to make a profitable switch from corn conservation reserve program crp lands and cotton respectively at a mid range offering of 50 dton feasible carbon credit prices of 3 8 23 per metric tonne co 2 e would incentivize conversion from corn crp or cotton respectively similarly a water quality penalty of 0 20 3 2 per kilogram no 3 n leached would incentivize the same conversions with resultant watershed improvement at a lower price of 30 dton switchgrass incentives based on valuation of ecosystem services begin to exceed feasible ranges of these valuations

the cyclical exploitation of renewable resource stocks may be optimal abstract the purpose of this paper is to illustrate that stable limit cycles represent a possible generic equilibrium strategy in renewable resource models if the considered resource provides positive externalities this possibility which has been thus far overlooked is demonstrated for a nonlinear variant of the widely quoted model of c w clark f h clarke and g r munro econometrica 47 25 47 1979

the impact of terms of trade shocks on a small open economy a stochastic analysis abstract the impact of a change in the terms of trade on the economic performance of a small economy is analyzed both the effects of unanticipated shocks and changes in the mean and variance of the probability distributions generating these disturbances are discussed in all cases the key element determining the adjustment is the effect on the rate of growth of real wealth to which in equilibrium all other real quantities are directly tied conditions for the harberger laursen metzler effect to hold are considered the impact of these changes on economic welfare as measured by expected discounted utility of the representative agent is also addressed jel f41 f43

the terms of trade and the current account the harberger laursen metzler effect the paper examines the effect of terms of trade changes on a small country s spending and current account assuming optimizing behavior in an intertemporal framework with perfect international capital mobility a temporary future terms of trade deterioration implies a deterioration improvement of the trade balance whereas a permanent terms of trade deterioration has an ambiguous effect depending on the rate of time preference nominal and real variables are considered via exact price indexes two periods and an infinite horizon are examined

current account dynamics and the terms of trade harberger laursen metzler two generations later this is a study of the current account dynamics resulting from the savings and investment dynamics in a small open economy which is subject to exogenous changes in its terms of trade and in world interest rates anticipated and unanticipated as well as temporary and permanent terms of trade changes have very different effects there is however a general tendency towards cycles in both savings and investment which gives rise to cycles in the current account it is shown that the classic harberger laursen metzler effect on saving of a terms of trade deterioration can have any sign for plausible parameter values both for temporary and permanent disturbances

optimal accumulation of pollution existence of limit cycles for the social optimum and the competitive equilibrium abstract this paper extends the recent investigation of tahvonen and withagen 1996 journal of economic dynamics and control 20 1775 1795 for costly and thus sluggish instead of instantaneous reductions in emissions in addition to the social optimum the paper investigates the competitive equilibrium this plausible extension allows to derive limit cycles as the outcome for both the social optimum and a competitive equilibrium given rational expectations of the firms

optimal pest control in greenhouse production of ornamental crops in this study we develop a conceptual bioeconomic model of floriculture production with aesthetic benefits wherein optimal decision rules depend on an intertemporal economic objective to maximize profits subject to economic and biological processes necessary conditions of the model identify optimal trajectories e g simultaneous single or cycling controls that define decision rules and economic thresholds for profit maximizing growers producing crops with aesthetic attributes the necessary conditions also highlight intertemporal trade offs between aesthetic benefits and expected future net benefits of arthropod stocks which have important policy implications the model is applied to the greenhouse production system of ivy geranium

temporal and spatial modelling of tropical deforestation a survival analysis linking satellite and household survey data we estimate a spatially explicit model of the forest clearance process among smallholder farmers in an agricultural frontier of southern mexico our analysis takes as its point of departure a simple utility maximising model that suggests many possible determinants of deforestation in an economic environment characterised by missing or thin markets hypotheses from the model are tested on a data set that combines a time series of satellite imagery with data collected from a survey of farm households whose agricultural plots were geo referenced using a global positioning system gps we implement a survival analysis to identify the effect of household level explanatory variables on the probability of deforestation this approach allows us to introduce a measure of the time until clearance as a covariate thereby affording a control for the effect of potentially important explanatory variables that vary through time but are not directly observable in addition to identifying several variables relevant for policy analysis including household demographics proximity to roads and government provision of agricultural support model results suggest that the deforestation process is characterised by non linear duration dependence with the probability of forest clearance first decreasing and then increasing with the passage of time

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

deterioration of the terms of trade and capital accumulation a reexamination of the laursen metzler effect abstract this paper analyzes the effect of both a permanent and a temporary deterioration in the terms of trade on a small open economy the model based on intertemporal optimization emphasizes the labor leisure choice and the role of capital accumulation the transitional dynamics is shown to depend upon the long run response of the capital stock to the terms of trade shock this consists of a negative substitution effect together with a positive income effect whether or not the laursen metzler effect holds depends upon whether the income effect dominates the substitution effect

a dns curve in a two state capital accumulation model a numerical analysis abstract in this paper we study a capital accumulation model in an optimal control theoretic framework where the capital stock and the investment rate are modelled as state variables and the change in the investment rate as control adjustment costs are introduced for investment rate and its change moreover we model network externalities by a convex segment in the revenue function which implies the existence of two long run optimal steady states one with a low level and the other with a high level capital stock it depends on the initial capital endowment and initial investment rate to which steady state it is optimal to converge we numerically compute a curve in the state plane for which it holds that when starting from a point on this curve the decision maker is indifferent between going to either one of these steady states and identify this curve as the dns curve the negative slope of the dns curve indicates that there is a trade off between the initial capital endowment and initial investment rate

effect of urban proximity on agricultural land values this article seeks to more accurately estimate the size and distance of the effect of urban proximity on agricultural land values the econometric model lets the size and distance of the effect of urban proximity on agricultural land values vary by population real income and time the changes in the effect of urban proximity over time can be largely explained by population and income thus there does not appear to be a shift in preferences toward living further from the city center

an intertemporal system of dynamic consumer demand functions abstract this paper constructs and estimates a system of dynamic consumer demand equations under the assumption of rational expectations about anticipated human wealth the traditional one period budget constraint is replaced by the lifetime anticipated wealth constraint lagged dependent variables are rationalized by an adjustment cost argument in the model presented both the dynamic adjustment coefficients as well as the parameters characterizing the underlying long run preferences are identified and can be estimated we find that a weak version of the reh cannot be rejected on the data in common with most empirical studies on demand behaviour we have to reject the symmetry restrictions

capturing household level spatial influence in agricultural management using random effects regression abstract data on agricultural and natural resource management typically have spatial patterns related to the landscapes from which they came consequently econometric models designed to explain the determinants of humans natural resource management practices or their outcomes often have spatial structure that can bring bias or inefficiency to parameter estimates although econometric tools are available to correct for spatial structure such tools are largely lacking for use with discrete dependent variable models while one obvious solution would be to develop the necessary tools an alternative is to identify conditions under which spatial dependency can be managed effectively without formal spatial autoregressive models this study examines conditions under which spatial structure corresponds closely to defined agro ecological zones making it possible to model spatial effects by random effects regression using household survey data sampled along agro ecological zone strata this article develops two models of links between farmer assets and agricultural natural resource degradation in southern peru the first stage model looks at determinants of crop yield loss over time an index of soil productivity while the second stage model looks at determinants of the extent of fallow cycles in crop rotation a key agricultural practice reducing crop yield loss diagnostic statistics for spatial dependency reveal spatial structure particularly in the fallow model this spatial dependency is eliminated in the ordinary least squares ols models by inclusion of the agro ecological zone random effects in the spatially dependent fallow model comparison of coefficient estimates between ols and the spatial autoregressive maximum likelihood models showed ols with random effects to give virtually identical results to the spatial autoregressive models making the latter unnecessary these results show that spatial structure in natural resource management models can sometimes be captured by zonal variables when this occurs random effects regression can largely eliminate spatial dependency a necessary precondition for this approach with household survey data is prior sample stratification according to landscape characteristics where random effects models can effectively capture spatial structure they may also offer analysts greater flexibility in analyzing models with limited dependent variables

dynamic analysis of policy lag in a keynes goodwin model stability instability cycles and chaos abstract in this paper we investigate the impact of government s stabilization policy on the dynamic behavior of the economic system in an analytical framework of a keynes goodwin model of the growth cycle in particular we study the effects of the policy lag on macroeconomic stability analytically and numerically it is shown that the increase of the policy lag contributes to destabilize the system and cyclical behavior and chaotic motion emerge in some ranges of the parameter values

optimal investment in clean production capacity for the mitigation of long term pollution threats one must consider that both the process of environmental degradation and the switchover to new and cleaner technologies are dynamic we develop a model of a uniform good that can be produced by either a polluting technology or a clean one the latter is more expensive and requires investment in capacity we derive the socially optimal pollution stock accumulation and creation of nonpolluting production capacity weighing the tradeoffs among consumption investment and djustment costs and environmental damages we consider the effects of changes in the pollution decay rate the capacity depreciation rate and the initial state of the environment on both the steady state and the transition period the optimal transition path looks quite different with a clean or dirty initial environment with the former investment is slow and the price of pollution may overshoot the long run optimum before converging with the latter capacity may overshoot

demographic structures savings and international capital flows abstract this paper investigates how the different demographic characteristics of two countries will drive the flow of capital between them as inhabitants of the longer lived nation have a higher savings rate than do those with the shorter lifespan it is motivated by the recent us experience during which its net foreign asset position declined dramatically while simultaneously its longevity has fallen increasingly below that of other developed g7 economies our contribution is to address the issue by introducing empirically based survival mortality functions into a traditional two country macrodynamic framework in doing so we eliminate some of the unsatisfactory aspects associated with the traditional two country representative agent model the sensitivity of the capital flows and the resulting net foreign assets of the two economies to key structural characteristics and their consequences for savings are emphasized

economic feasibility of variable rate technology for nitrogen on corn the economic feasibility of three different fertilizer management strategies constant rate three rate and multiple rate technology in the application of nitrogen fertilizer to corn are compared under different probability distributions for field fertility a constant rate was more profitable than either variable rate technology system for homogeneous fields with low fertility the application area at which the relative profitability between systems changed was largely determined by the characteristics of the fertility distribution rather than by assumptions regarding costs variable rate technology improves groundwater quality in low fertility fields by reducing total fertilizer applied and in high fertility fields by increasing corn yield

adding value to spatially managed inputs by understanding site specific yield response abstract many mechanized crop producers and agribusinesses are fascinated with precision agriculture technology but adoption has lagged behind the expectations among the reasons for slow adoption of precision agriculture technology is that initial users focused excessively on in field benefits from variable rate fertilizer application using regional average fertilizer recommendations this article illustrates how greater use of site specific crop response information can improve variable rate input application recommendations precision agriculture is spatial information technology applied to agriculture the technologies include global position systems gps geographic information systems gis yield monitoring sensors and computer controlled within field variable rate application vra equipment experimentation with these technologies is occurring everywhere there is large scale mechanized agriculture commercial use has been greatest in the us where 43 of farm retailers offered vra services in 2001 except for certain high value crops like sugar beet farmer adoption of vra has been modest the farm level profitability of vra continues to be questionable for bulk commodity crops the theoretical model and illustration presented here suggest that vra fertilization has not yet reached its profitability potential most vra field trials to date have relied upon existing state wide or regional input rate recommendations unobserved soil characteristics can potentially interact with an input to make its effect on yield vary site specifically within fields failure to use site specific response functions for vra applications may lead to a misallocation of inputs just as great as that which results from using uniform applications instead of vra agricultural economists have a long history of estimating output response to input applications several have started to develop tools to estimate site specific responses from yield monitor and other precision agriculture data likewise agricultural economists have developed an important body of research results on information value based on managing variability typically in temporal settings with these tools a major potential exists to develop further benefits from precision agriculture technologies that permit truly spatially tailored input applications

estimating maximum land use change potential from a regional biofuel industry abstract the maximum amount of land for growing switchgrass for ethanol is estimated for a region in the southeastern u s breakeven capacities are calculated for land in row crops hay pasture and marginal land characteristics of land categories inform potential land use change impacts as well as switchgrass profitability variable yields within and across land categories are translated into distributions of switchgrass net revenue breakeven curves are generated for a range of switchgrass prices these curves provide upper bounds for further analysis of actual switchgrass adoption in context of broader economic forces and possible policy mechanisms to minimize environmental impacts a farm gate price of 55 mg 1 is estimated for half of marginal and pasturelands to break even with switchgrass at this price only 20 of land in hay and a small fraction of row crop hectares break even half of hay and row crops hectares break even at approximately 90 mg 1 and 100 mg 1 respectively at 60 mg 1 sufficient land area can profitably produce switchgrass for ethanol to displace approximately 10 of gasoline consumed in georgia north carolina and south carolina however this price only indicates breakeven capacity implying that higher prices may be necessary to realize 10 displacement

irrigation production functions with water capital substitution the dynamics of biomass growth implies that the yield of irrigated crops depends in addition to the total amount of water applied on irrigation scheduling during the growing period advanced irrigation technologies relax constraints on irrigation rates and timing allowing us to better adjust irrigation scheduling to the varying needs of the plants along the growing period irrigation production functions then should include capital or expenditures on irrigation equipment in addition to aggregate water we derive such functions and study their water capital substitution properties implications for water demand and adoption of irrigation technologies are investigated a numerical example illustrates these properties

is site specific yield response consistent over time does it pay this study examines the profitability and stability of site specific ss nitrogen fertilizer recommendations using an empirical model of ss yield response to controlled inputs stable site characteristics and time varying weather factors using a three year panel of on farm corn yield experiments and new continuous variables to describe site characteristics both spatial and ordinary least squares regression models show clear evidence of ss corn yield response to nitrogen fertilizer yield response is predictable only on irrigated fields even there bootstrapped confidence intervals for profitability gains on selected fields indicate that ss nitrogen application would rarely cover its costs

the value of variable rate technology an information theoretic approach we present a theoretical treatment of the economics of variable rate technology and its interplay with information the framework facilitates description of on farm empirical profitability studies of variable rate nitrogen application on illinois cornfields we estimate site specific ex ante economically optimal nitrogen application rates and the value of site specific information in the management of variable rate technology we find that with site specific information provided free variable rate nitrogen application would have been profitable in six of eight fields because private markets are unlikely to provide such information sufficiently more public funding of long term multiregion multiyear experimentation is appropriate copyright 2009 oxford university press

non convexities in continuous time investment theory that non convex preferences or technologies cause problems for economic theory is well known in recent years there have been numerous contributions to the nonconvexity problem in the context of models with a finite dimensional commodity space in the capital theory context non convexities have received explicit treatment in a few papers in two distinguishable ways the problem is cast either in a discrete time framework aoki 1971 rothschild 1971 or in a continuous time framework in which there are implicitly unbounded economies of scale in investment the latter formulation leads to jumps in the state variable or lumpy investment the standard problem treated is one of decreasing costs in the installation of new capacity contributions include chenery 1952 dixit mirrlees and stern 1975 hartwick 1976 manne 1967 srinivasan 1967 starrett 1978 and weitzman 1970 these types of analysis unfortunately ignore some of the most interesting problems associated with non convexities in investment theory in a discrete time framework the important distinction between stocks and flows is blurred while the capacity installation problem by admitting unbounded scale economies excludes the smoothing of state variables that follows by allowing for eventually increasing costs of adjustment in this paper we undertake a systematic examination of non convexities or sometimes non concavities in the context of a classic problem in continuous time investment theory the optimal accumulation of capital by a firm maximizing its present value over an infinite horizon while the results obtained are specific to this particular model we feel that they can be qualitatively extended to any capital theory problem which can be cast in a continuous time optimal control theory framework there are various sorts of non2 convexities which can arise in these problems first there can be either stock or flow non convexities that is non convexities which are introduced into the net benefit function the measure of the flow of benefits at each moment through changes in the capital stock state variable on the one hand or changes in the flow of investment control variable on the other if the benefit and transition functions are not concave in both these variables then necessary conditions are no longer sufficient for optimality and conventional marginal analysis fails non convexities can also be introduced into the value functional which has a stock dimension in order to examine these different sorts of non convexity problems we shall now present the basic economic problem a firm is faced with the problem of maximizing the present value of discounted cash flow over an infinite horizon hence it chooses an investment programme i t to maximize 00

bt cotton in india field trial results and economic projections abstract the performance of bt cotton in india is analyzed on the basis of field trial data from 2001 the amounts of pesticides applied during the trials were reduced to one third of what was used in conventional cotton while under severe pest pressure yield gains were 80 productivity effects are modeled econometrically with a damage control specification the first approval for the commercial cultivation of bt hybrids was given in 2002 by 2005 the technology is expected to cover one quarter of total indian cotton area medium term projections show sizeable welfare gains for the overall economy with farmers being the main beneficiaries

introduction to the special issue on spatial analysis for agricultural economists abstract the goal of this special issue is to introduce agricultural economists to new analytical approaches involving spatial data this paper provides a brief history of the special issue and an introduction to von thunen s model of the determinants of land use and rent that underlies all spatial analysis

ecosystem services and agriculture cultivating agricultural ecosystems for diverse benefits crop and rangelands are over 25 of the earth s land area and they are expanding agricultural ecosystems rely on a suite of supporting ecosystem services to provide food fiber and fuel as well as a range of accompanying but non marketed ecosystem services es ecosystem services from agriculture include regulation of water and climate systems aesthetic and cultural services as well as enhanced supporting services such as soil fertility many of these es are appreciated by people but they lack markets so they lack the incentives for provision that come with prices for public policy decisions to take them into account non market valuation techniques are needed such as travel cost contingent valuation hedonic valuation and cost based or factor income approaches this article offers an overview of es from agriculture and non market valuation methods as it introduces the articles in this special section on ecosystem services and agriculture understanding how ecological functions generate es is fundamental to management but so too is understanding how humans perceive and value those services research is required both to design cost effective incentives to provide es and to measure which kinds of es could provide the greatest overall welfare benefits to society agricultural ecosystems offer newly recognized potential to deliver more diverse ecosystem services and mitigate the level of past ecosystem disservices this special section of ecological economics conveys both how these are becoming possible and the challenges to science and public policy design of turning that potential into reality

the terms of trade labour supply and the current account this paper extends svensson and razin s two period analysis of the laursen harberger metzler effect to the important case where labour supply and output are variable a terms of trade shift alters the relationship between the product and the consumption wage and so induces a change in output this extension substantially enriches their analysis a temporary current terms of trade deterioration has an ambiguous effect on the current account but their finding that a future deterioration leads to an improvement in the current account is strengthened the effect of a permanent terms of trade shift in a stationary state depends not only on the rate of time preference but also on the strength of intertemporal substitution effects in the canonical case of a constant rate of time preference the current account deteriorates in response to a permanent terms of trade deterioration if the degree of intertemporal substitution in consumption exceeds that in leisure or equivalently whether the wealth effect on consumption exceeds that on labour supply the model is then extended to an infinite horizon by embedding it in an overlapping generations framework intergenerational linkages through the labour market are now the source of some complex dynamics from an initial position of balance on current account an anticipated temporary terms of trade deterioration leads to a period of steadily increasing surplus a deficit on impact and a further period of declining surpluses a permanent deterioration in the terms of trade leads to a similar period of anticipatory surpluses followed by a period of declining deficits after impact this abstract was borrowed from another version of this item

total factor productivity and the environmental kuznets curve abstract empirical studies support the environmental kuznets curve hypothesis ekc for some pollutants as income increases pollution increases reaches a peak and eventually decreases while relying mostly on cross sectional data the interpretations assert that the ekc is a by product of economic growth over time in doing so and in neglecting the role of important country specific characteristics these studies overlook potential econometric problems and introduce policy misconceptions differences in total factor productivity tfps account for much of the variation in income across countries with important implications for environmental quality we develop a theoretical model where different tfps produce a cross sectional ekc even if the dynamic path of environmental quality to its steady state in individual countries suggest otherwise the cross sectional ekc depends on diminishing returns to scale in environmental protection on the curvatures of the utility function with respect to consumption and of the environmental protection function and the elasticities of steady state consumption and environmental expenditures with respect to variation in tfps

switching to perennial energy crops under uncertainty and costly reversibility we study a farmer s decision to convert traditional cropland into land for growing dedicated energy crops taking into account sunk conversion costs and uncertainties in crop returns the optimal decision rules differ significantly from the expected net present value rule which ignores uncertainties and from real options models that allow only one way conversion into energy crops these models also predict drastically different patterns of land conversions into and out of energy crops over time using corn soybean rotation and switchgrass as examples we show that the model predictions are sensitive to assumptions about stochastic processes of the returns government policies might have unintended consequences subsidizing conversion costs into switchgrass may not much affect proportions of land in switchgrass in the long run

stability and limit cycles in competitive equilibria subject to adjustment costs and dynamic spillovers abstract this paper derives conditions for hopf bifurcations in a general class of competitive equilibria where individual actions i lead to a dynamic spillover or an externality that is found e g in environmental economics and in the endogenous growth literature and ii these actions can be only sluggishly adjusted it turns out that only one and particularly simple to check condition allows for a hopf bifurcation in both instances of perfect foresight and myopic expectations growth of the spillover at the steady state in fact this condition ensures the existence of a bifurcation if the adjustment costs are sufficiently convex

biofuel economics in a setting of multiple objectives unintended consequences this paper examines biofuels from an economic perspective and evaluates the merits of promoting biofuel production in the context of the policies multiple objectives life cycle implications pecuniary externalities and other unintended consequences the policy goals most often cited are to reduce fossil fuel use and to lower greenhouse gas emissions but the presence of multiple objectives and various indirect effects complicates normative evaluation to address some of these complicating factors we look at a several combinations of policy alternatives that achieve the same set of incremental gains along the two primary targeted policy dimensions making it possible to compare the costs and cost effectiveness of each combination of policies for example when this approach is applied to u s produced biofuels they are found to be 14 31 times as costly as alternatives like raising the gas tax or promoting energy efficiency improvements the analysis also finds the scale of the potential contributions of biofuels to be extremely small in both the u s and eu mandated u s corn ethanol production for 2025 reduces u s petroleum input use by 1 75 and would have negligible net effects on co2 emissions and although eu imports of brazilian ethanol may look better given the high costs of other alternatives this option is equivalent at most to a 1 20 reduction in eu gasoline consumption

de and reforestation stability instability and limit cycles the optimal intertemporal use of forests is a traditional and extensively investigated topic with recent emphasis on sustainable uses the political discussion about the clearing of tropical forests adds a topical policy dimension to this investigation this study shows that cyclical policies i e clearing is followed by reforestation and then again clearing and so on indefinitely may be optimal this possibility which is due to two things the growth of biomass such as trees and the costs of clearing and reforestation is overlooked in the corresponding literature as a consequence it is possible that present clearing practices observable in many developing countries may be an optimal yet transient policy that will be followed by reforestation as the developed countries with again expanding forests indicate

oil prices welfare and the trade balance the paper examines welfare effects and the trade balance response to changes in the world oil prices and interest rates for a small oil importing economy the trade balance is mainly seen as the difference between saving and investment and these are derived from intertemporal optimization it is shown that the welfare effects consist of static terms of trade effects intertemporal terms of trade effects and employment effects the trade balance deteriorates for temporary oil price increases whereas its response is ambiguous for permanent oil price increases for a fall in the world interest rate the trade balance deteriorates if the economy is a net borrower

stochastic technology risk preferences and adoption of site specific technologies a model of farmer decision making is developed to determine the extent to which uncertainties about soil fertility and weather affect the value of site specific technologies ssts using jointly estimated risk and technology parameters uncertainty can lead risk averse farmers to apply more fertilizers and generate more pollution than in the certainty case ignoring uncertainty and risk aversion would overestimate the economic and environmental benefits of ssts and underestimate the subsidy required to induce adoption accounting for uncertainties and risk preferences might explain the low observed adoption rates of ssts improving the accuracy of ssts would increase the incentives for adoption

spatial effects in econometric practice in environmental and resource economics this paper reviews some methodological and practical issues that arise in the use of spatial econometric techniques in empirical research in environmental and resource economics the focus is on four issues that do not always receive sufficient attention in applied work the statistical implications of using spatially interpolated values in the rhs of models the issue of spatial scale and spatial aggregation the conceptualization of spatial variation in a continuous or discrete space and the modeling of dependence as simultaneous or conditional spatial effects in econometric practice in environmental and resource economics introduction recent years have seen a tremendous increase in the application of geographic information systems and spatial analysis in the social sciences in general goodchild et al 2000 and in applied research in environmental and resource economics in particular bockstael 1996 such research is often characterized by the need to combine data obtained from different sources using different sample designs aggregation conventions and reporting frequencies for example economic variables such as house and land values and the type and volume of agricultural production are collected by means of censuses and surveys designed to accurately portray the distribution of the variable in the population of interest this population pertains to economic agents or aggregates thereof which are typically conceptualized as discrete distinct objects but rarely envisaged in an explicit spatial context in contrast environmental characteristics are often obtained from physical measurements that result from an underlying spatial sampling design examples are satellite imagery used to estimate land use and land cover and readings from sensors at fixed air and water quality monitoring stations the sampling design used for these measures may be optimized to estimate the distribution of the physical phenomenon such as air quality as a spatial continuum or field but has little connection to the framework used to collect economic information in addition neither economic nor physical data collection necessarily matches the spatial scale of the phenomenon under study such as the geographic extent of a market this is a level of complexity that goes well beyond the traditional micro macro distinction in economic analysis the scale mismatch and the inherent need to integrate data from various

terms of trade factor intensities and the current account in a life cycle model this paper examines the effects of terms of trade changes on the external adjustment of a small open economy where each consumer has a life cycle saving function the supply side of the economy is given by the standard two sector model with two primary factors labour and capital it is shown that when both commodities are produced a terms of trade deterioration leads to a current account deficit surplus if the export import sector is more labour intensive

borrow and adjust fiscal policy and sectoral adjustment in an open economy should the government run fiscal deficits in response to an adverse external shock that warrants transfer of resources from production of nontraded to traded goodsq this article considers normative fiscal policy implications of sectoral adjustment costs in a two sector model with overlapping generations fiscal deficits benefit present generations by depleting foreign assets and slowing down the adjustment process we show that despite no nominal rigidities temporary fiscal deficits increase social welfare if adjustment costs prevent immediate sectoral reallocation of inputs if there are no adjustment costs the case for fiscal deficits vanishes copyright 2003 by the economics department of the university of pennsylvania and osaka university institute of social and economic research association

what s so spatial about diversification in nigeria summary many households in developing countries allocate their productive assets among various income generating activities in order to develop a portfolio of income from occupations with different degrees of risk expected returns and seasonal and liquidity constraints the push and pull factors influencing diversification decisions of households are widely discussed in the literature however no study to date has taken into account spatial interdependence of household decisions in spite of various channels of neighborhood effects such as information flow learning from others social networks and agglomeration economies this paper fills in the gap by incorporating spatial dependence in the choice model of diversification using a spatial auto regressive probit model and an advanced bayesian strategy to its estimation empirical analysis is run taking advantage of the nigerian general household survey panel 2010 11 providing gis coordinates for the surveyed households the results imply endogeneity of the neighbors decisions to allocate their productive assets among various occupations and signal the importance of social learning and agglomeration effects favoring the spillover of diversification activities through neighbors networks and local markets the households decisions respond to local environment factors such as weather shocks or infrastructural constraints as shown by the regional differences taking into account spatial interdependence is particularly important in the event of a wide divide of the data available into different zones as for example in case of the nigerian northern region where the states are larger

intertemporal substitution risk aversion and economic performance in a stochastically growing open economy abstract the constant elasticity utility function implies that the intertemporal elasticity of substitution is the inverse of the coefficient of relative risk aversion with empirical evidence suggesting that this relationship may or may not hold studies of risk and growth should decouple these two parameters this paper provides an analytical characterization and numerical simulations of the equilibrium of a stochastically growing small open economy under general recursive preferences we show that errors committed by using the constant elasticity utility function even for small violations of the compatibility condition can be substantial our results suggest that the constant elasticity utility function should be employed with caution