hedging production risk with options the expected utility maximization problem is solved for producers with both price and production uncertainty who have access to both futures and options markets introduction of production uncertainty alters the optimal futures and options position and almost always makes it optimal for the producer to purchase put options and to underhedge on the futures market simulation results lend support to the practice of hedging the minimum expected yield on the futures market and hedging remaining expected production against downside price risk using put options the results are strengthened if the producer expects local production to influence national prices and if risk aversion is higher at low income levels

the determinants of equilibrium unemployment in britain a lot of energy is currently being expended in trying to understand what has been happening to unemployment in britain and the rest of the developed world in this paper we look at this question in the british context by trying to confront some possible explanations with the data since the data we use are quarterly over rather a short period we are setting the explanations a very hard test most explanations tend to be rather casual and the theories underpinning them ill developed thus for example the so called real wage argument is based on the idea that real wages affect labour demand and that the equilibrium real wage bears some relatively stable relationship to output per head but how stable is not clear thus whether or not we can expect a well defined stable ceteris paribus dynamic relationship between real product wages as a proportion of output per head and unemployment is equally unclear so if such a relationship does not show up in a quarterly regression model this may not be that serious for the theory nevertheless we must look for the relationship for how else are we ever to discriminate between a plethora of conflicting views the primary emphasis in this paper is on the secular factors affecting unemployment rather than the cyclical variables consequently we shall not be concerned with developing a coherent theory of cyclical fluctuations and in the empirical work we shall control for the cycle simply by making use of those exogenous or predetermined variables which other work in this field suggests are important 2 the remainder of the paper is set out as follows the next section is concerned with specifying a model which generates a definition of equilibrium unemployment the outline of this model is a pair of equations determining the flows into and out of unemployment and these are specified in section ii which looks closely at the possible variables involved section iii then deals with the results and presents some general conclusions

the decoupling of farm programs revisiting the wealth effect recent reforms of agricultural policies in developed countries have introduced direct payments as replacements for traditional production enhancing instruments whereas these new instruments can in principle influence production through several channels current empirical studies show no significant impact on production direct payments mainly increase land values in this article we revisit the evaluation of the coupling effects passing through the wealth of agricultural households the initial wealth of these agents while mainly being in the form of land asset holding is always assumed to be fixed to the contrary we show theoretically and through an empirical simulation exercise that once the impact of farm programs on initial wealth is properly accounted for the measure of the coupling effects is not as negligible as found in previous studies copyright 2010 oxford university press

secondary forests as temporary carbon sinks the economic impact of accounting methods on reforestation projects in the tropics abstract tropical forestry is often not competitive with agricultural land uses such as pasture for cattle ranching additional revenues from carbon sequestration generated by the clean development mechanism cdm of the kyoto protocol can change this situation in three different zones of north western ecuador minimum compensation payments for carbon sequestration were determined which would make reforestation a feasible land use alternative based on our findings that these minimum prices depend on the net benefit of the respective land use alternatives and on the accounting regimes for cdm sink projects we applied the accounting rules for temporary and long term certified emission reductions cer to two reforestation projects forest plantation and natural regrowth of secondary forest a comparison of these alternatives showed that secondary forest is an attractive alternative under both accounting regimes because of its low establishment costs and relative early timber revenues after identifying the zone most suitable for carbon sink projects we calculated net benefits of land use changes in the event that certain prices for emission reductions were actually paid we found that secondary forest becomes economically attractive if the price of permanent credits is above 4 5 tco 2 whereas forest plantations require permanent cer prices of 7 0 tco 2 in both cases the results are within the price margins forecasted by various institutions for the first commitment period of the kyoto protocol the presented methodology is meant to support the decision making process on the supply side of a future cer market opportunity costs of land use changes have to be analyzed carefully before deciding in favor of long binding forestry projects assigning temporary credits to naturally regrown secondary forests could although excluded from cdm during the first commitment period combine the advantages of a flexible accounting regime with the positive economic and ecological effects of this competitive land use

cost effective compensation to avoid carbon emissions from forest loss an approach to consider price quantity effects and risk aversion abstract analyses were carried out on financial compensation to avoid loss of tropical forests and related carbon c emissions when marginal financial yield declined for land use options with extended areas and when a risk averting perspective modeled according to financial theory around the capital asset pricing model is assumed the approach in this study was to consider natural forest forest plantation pasture and cropland simultaneously to investigate how an optimized land use distribution may reduce the amount of compensation necessary to avoid c emissions from forest loss the financial compensations derived were as high as us 176 per hectare per year when comparing natural forests only with the most profitable alternative croplands however compensation decreased to us 124 for risk neutral decision makers who would strive for optimized land use allocation and to only us 47 per hectare per year for risk avoiders who would look to maximize the reward to variability ratio sensitivity analyses indicated that the compensation under risk aversion increased much less than under risk ignoring when increased productivity of agricultural land use or growing demand for agricultural products was simulated it was concluded that considering appropriate diversification strategies and the well documented human behavior to avoid risks is an important step in developing cost effective compensation policies

the determinants of equilibrium unemployment in britain a comment in a recent paper nickell 1982 has focused on an empirically neglected aspect of unemployment the flows into and out of the stock he estimates that the natural or equilibrium rate doubled from i967 2 56 to 1979 5 82 almost all unemployment is held to be due to equilibrium or secular forces in this comment we make a number of points whose effect is to cast some doubt on these results

to value or not to value that is not the question abstract should we reject money when we value nature like most environmentalists ecological economists are increasingly divided on this question synthesizing political ecology with ecological economics we argue that this way of framing the question is limited we propose a reformulation of the question into when and how to value with money and under what conditions we recommend four criteria for a sound choice environmental improvement distributive justice and equality maintenance of plural value articulating institutions and confronting commodification under neo liberalism we call for due attention to the socio political context within which a valuation is placed and the political goals it serves the relevance of this framework is demonstrated by applying it to three practical cases pollution damages water pricing and payments for ecosystem services

case study of agri environmental payments the united kingdom abstract the environmentally sensitive areas esa program when launched in the united kingdom uk in 1986 was the first agri environmental program in the european union eu this program grew to a total of 43 designated esa schemes in the uk as a whole 22 of which were in england a variety of agri environmental payments programs were created to supplement and complement the esa schemes in years to follow the most prominent of these in england was the countryside stewardship scheme css established in 1991 the css was available to farmers outside the esas and like the esa program was intended to protect valued landscapes and habitats and to improve public enjoyment of the countryside by 2003 over 10 of england s agricultural land was enrolled in either esa or css agreements these voluntary agreements were long term contracts usually for 10 years between the government and farmers to provide environmental services several major evaluations of the esa program and the css were conducted over the years and the results of many of those evaluations and the lessons derived are synthesized and summarized in this article both the esa program and the css proved to be generally effective in enrolling many farmers in the entry level contract tiers thereby halting or slowing degradation of rural landscape and other environmental features however the schemes did not generally offer sufficient economic incentives to attract high levels of enrollment in the intensive farming areas also the schemes were limited in their success in enrolling farmers in higher payment tiers tiers that required more substantial changes in farming practices the high crop and livestock related payments received by farmers under the eu s common agricultural policy cap contributed to the disincentives to participate especially in higher tiers following the latest 2003 reforms of the eu s cap england s esa program and css are being replaced by a new consolidated package of schemes that draws on lessons learned over the past 15 20 years with these two flagship programs

designing payments for environmental services in theory and practice an overview of the issues abstract payments for environmental services pes have attracted increasing interest as a mechanism to translate external non market values of the environment into real financial incentives for local actors to provide environmental services es in this introductory paper we set the stage for the rest of this special issue of ecological economics by reviewing the main issues arising in pes design and implementation and discussing these in the light of environmental economics we start with a discussion of pes definition and scope we proceed to review some of the principal dimensions and design characteristics of pes programs and then analyze how pes compares to alternative policy instruments finally we examine in detail two important aspects of pes programs their effectiveness and their distributional implications pes is not a silver bullet that can be used to address any environmental problem but a tool tailored to address a specific set of problems those in which ecosystems are mismanaged because many of their benefits are externalities from the perspective of ecosystem managers pes is based on the beneficiary pays rather than the polluter pays principle and as such is attractive in settings where es providers are poor marginalized landholders or powerful groups of actors an important distinction within pes is between user financed pes in which the buyers are the users of the es and government financed pes in which the buyers are others typically the government acting on behalf of es users in practice pes programs differ in the type and scale of es demand the payment source the type of activity paid for the performance measure used as well as the payment mode and amount the effectiveness and efficiency of pes depends crucially on program design

optimizing agricultural land use portfolios with scarce data a non stochastic model the theory of portfolio selection has often been applied to help improve economic decisions about the environment applying this theory requires information on the covariance of uncertain returns between all combinations of the economic options and also assumes that returns are normally distributed as it is usually difficult to fulfill all data requirements and assumptions this paper proposes a variant of robust portfolio optimization as an alternative that needs less pre information the approach considers future uncertainties in a non stochastic fashion through possible deviations from the nominal return of land use alternatives maximizing the economic return of the land use portfolio is conditional on meeting an inclusive set of constraints these demand that a pre defined return threshold is achieved by the robust solution for each uncertainty scenario considered based on data for eight agricultural crops common in the ecuadorian lowlands a comparison with portfolios generated by classical stochastic mean variance optimization shows greater land use diversification through increased shannon indices but only moderate expected economic loss of non stochastic robust land use portfolios we conclude that non stochastic derivation of land use portfolios is a good alternative to the classical stochastic model in situations where information on economic input parameters is scarce

economic development and the return to human capital a smooth coefficient semiparametric approach this paper investigates the impact of human capital on the process of economic growth by allowing the contribution of traditional inputs capital and labour as well as that of human capital to vary both across countries and time the former is accomplished by constructing an index of tfp growth for traditional inputs while the latter through semiparametric methods we derive estimates of the output elasticity and social return to human capital for 51 countries at various stages of economic development copyright 2005 john wiley sons ltd

can china meet its 2020 economic growth and carbon emissions reduction targets abstract as a developing country china faces the dual challenges of economic development and environment protection this study analyzes whether the chinese government will be able to implement this win win goal and how to achieve it in 2020 the results show that 1 the annual contribution rates to gdp of comprehensive factors human capital fixed capital fossil energy and non fossil energy during 1991 2013 were 33 97 14 17 15 47 14 91 and 21 47 respectively china s economic growth mainly depends on fixed capital investment and the output elasticity of human capital to gdp is the highest 2 fossil energy consumption could be reduced by increasing human capital investment based on the substitution elasticity of human capital for fossil energy simultaneously the technological progress of fixed capital and fossil energy is slower than that of non fossil energy which is conducive to the dual goals of economic growth and carbon emissions reduction 3 to reach these goals in 2020 the inputs of human capital fixed capital fossil energy and non fossil energy must increase by 12 05 16 89 1 29 times and 74 67 of the 2013 levels by 2020 4 this study analyzes the means and conditions for china to meet their goal in terms of these constraints and finds that technological progress is the key to meeting the economic growth and carbon emissions goals in 2020

labour productivity in spain 1977 2002 this study examines the evolution of labour productivity across spanish regions during the period from 1977 to 2002 applying the kernel technique we estimate the effects of the transition process on labour productivity and its main sources we find that spanish regions experienced a major convergence process in labour productivity mostly driven by human capital in the 1977 1993 period conversely the dynamics of investment in physical capital appear to be neutral with respect to the transition dynamics of labour productivity finally from 1995 to 2002 no dynamic processes seemed to have taken place spanish regions exhibit a persistent relative position with established convergence clubs the human capital effect is less important and the investment in physical capital seems not to have a triggering effect on labour productivity growth

conservation payments under risk a stochastic dominance approach conservation payments can be used to preserve forest and agroforest systems to explain landowners land use decisions and determine appropriate conservation payments it is necessary to focus on revenue risk marginal conditional stochastic dominance rules are used to derive conditions for determining the conservation payments required to guarantee that the environmentally preferred land use dominates an empirical application to shaded coffee protection in the biologically important choco region of west ecuador shows that conservation payments required for preserving shaded coffee areas are much higher than those calculated under risk neutral assumptions further the extant distribution of land has strong impacts on the required payments

human capital and growth abstract this paper describes a growth model with the property that human capital accumulation can account for all observed growth the model is shown to be consistent with evidence on individual productivities as measured by census earnings data the central hypothesis is that we learn more when we interact with more productive people

unemployment dynamics in britain we examine the inter related dynamics of the unemployment flows and stock our model allows them to be linked through the standard accounting identity but also through behavioural relationships we find that for the uk the bulk of the correlation between duration and the unemployment stock arises from the dependence of duration on unemployment taking careful account of the inter temporal identity outflow shocks have contributed little to the evolution of unemployment since the late 1960s given that the correlation of duration and unemployment arises from the behavioural relationship we show that unemployment dynamics arise mostly from shocks to the inflow unemployment remains one of europe s more pressing economic and social problems as highlighted in the eu s lisbon declaration of 2000 a dynamic approach to unemployment starts from the recognition that unemployment is a stock and changes through shocks to the outflow and inflow the research and policy focus has generally been on the outflow process or equivalently unemployment duration a glance at figure 1 shows why this might be so it reveals a very strong co movement of the unemployment rate and the proportion of the unemployed out of work for a year or more analysts have used data like this to argue that the source of unemployment fluctuations has been changes in the outflow process 1 possibly as a consequence of this most policies directed at reducing unemployment focus on improving the search effectiveness and employability of the currently unemployed the unemployment flows and stock are related in quite complex ways and in this paper we focus on these inter related dynamics the model we use allows them to be linked in two ways first there is the simple accounting relationship whereby shocks to the flows accumulate in the stock second search and matching models suggest behavioural relationships of the flows depending on unemployment the presence of the nonlinear accounting identity in the model makes the analysis of the joint system problematic so we proceed sequentially investigating first one link and then the other we find that for the uk the bulk of the correlation between duration and the unemployment stock displayed in figure 1 arises from the dependence of the former on the latter we find a strong dependence of the outflow rate on unemployment taking careful account of the inter temporal identity on the other hand outflow shocks have contributed little to the evolution of unem

schooling data technological diffusion and the neoclassical model this research was supported by the spanish ministry of science and technology through cicyt grants sec99 1189 and sec99 0820 and by the spanish ministry of finance and fundacion caixa galicia

crop biodiversity risk management and the implications of agricultural assistance this paper presents a theoretical and empirical analysis of the impact of financial assistance to farms on crop biodiversity in an uncertain setting the findings reveal that risk aversion is an important driving force for crop biodiversity conservation risk averse farmers can hedge against the uncertainty they face by allocating land to different crop species however policies intended to stabilize revenues by supporting particular species may alter this link by delinking crop biodiversity from the management of revenues risk

stochastic economic assessment of afforestation on marginal land in irrigated farming system we analysed the economic viability of afforestation on marginal irrigated croplands in irrigated drylands of uzbekistan the revenues derived from a combination of diversified agricultural production carbon sequestration nitrogen fixation and avoided irrigation water use were analysed considering uncertainty associated with on farm activities such as crop production and short rotation forestry at the per hectare scale variability in land use revenues would necessitate substantial increases in carbon prices for afforestation to be as profitable as crop cultivation on marginal lands assuming an abundant irrigation water supply in contrast at the farm scale the analysis results revealed that afforestation can be attractive financially even without carbon payments due to farm production constraints variable land use returns and the benefits of land use diversification increased carbon prices would promote carbon sequestration by motivating farmers to plant high biomass producing tree species but would have an ecosystem service trade off by reducing the appeal of nitrogen fixing species that are essential for nitrogen self sufficiency of afforestation efforts given the modest irrigation needs of afforestation efforts compared to the cultivation of annual crops tree plantations could become a primary income source for farms during periods of drought irrigation water saved from replacing crops with trees on marginal farmland would enhance the cultivation of commercial crops on productive lands thus increasing farm income

how well do tree plantations comply with the twin targets of the clean development mechanism the case of tree plantations in tanzania the clean development mechanism cdm of the kyoto protocol is supposed to provide both carbon mitigation and poverty reduction this article reports from a model based study of market related carbon leakage and poverty reduction in the wake of a cdm tree planting project in tanzania a tree plantation was incorporated in a computable general equilibrium cge model with income differentiated household segments the study focused on sensitivity of carbon leakage and income distribution to different project ownerships and carbon premium allocations it turned out that the project value in terms of carbon premium has clear shortcomings as indicator of induced gdp growth and poverty alleviation the non poor rural and urban households benefit considerably more than the poor households however rising household income in all domestic project ownership arrangements increases demand for food raises use of fertilizer and crop yields a carbon cycle module for agricultural land use was incorporated in the cge model showing an increased carbon sequestration in agricultural soil representing a negative leakage through markets in the range of 60 120 of the certified emissions reductions as registered in the cdm tree plantation project

growth convergence and public investment a bayesian model averaging approach the aim of this study is twofold first the determinants of economic growth are studied among a wide set of potential variables for the spanish provinces nuts3 among others various types of private public and human capital in the group of growth factors are included also it is analysed whether spanish provinces have converged in economic terms in recent decades the second objective is to obtain cross section and panel data parameter estimates that are robust to model specification for this purpose a bayesian model averaging bma approach is used bayesian methodology constructs parameter estimates as a weighted average of linear regression estimates for every possible combination of included variables the weight of each regression estimate is given by the posterior probability of each model

will developing country nutrition improve with income a case study for rural south india aggregate estimates of food expenditure are consistent with such a possibility implying income expenditure elasticities close to one however the high degree of aggregation at which such estimates are made means that the considerable increase in price per nutrient as income increases is ignored and the nutrient elasticities are therefore overstated estimates for a rural south indian sample indicate that this bias is considerable and that the true nutrient elasticities with respect to income may be close to zero

socioeconomic impacts of public forest policies on heterogeneous agricultural households nepal has a long history of returning public forests to local people as part of its community forestry programme in principle the community forestry programme is designed to address both environmental quality and poverty alleviation however concern has been expressed that forest policies emphasise environmental conservation and that this has a detrimental impact on the use of community forests in rural nepal where households require access to public forest products to sustain livelihoods to study the effect of government policies on forest use an economic model of a typical small community of economically heterogeneous households in nepal was developed the model incorporates a link between private agriculture and public forest resources and uses this link to assess the socioeconomic impacts of forest policies on the use of public forests socioeconomic impacts were measured in terms of household income employment and income inequality the results show that some forest policies have a negative economic impact and the impacts are more serious than those reported by other studies this study shows that existing forest policies reduce household income and employment and widen income inequalities within communities compared to alternative policies certain forest policies even constrain the poorest households ability to meet survival needs the findings indicate that the socioeconomic impacts of public forest policies may be underestimated in developing countries unless household economic heterogeneity and forestry s contribution to production are accounted for the study also demonstrates that alternative policies for managing common property resources would reduce income inequalities in rural nepalese communities and lift incomes and employment to a level where even the poorest households could meet their basic needs

managing increasing environmental risks through agrobiodiversity and agrienvironmental policies abstract agro biodiversity can provide natural insurance to risk averse farmers by reducing the variance of crop yield and to society at large by reducing the uncertainty in the provision of public good ecosystem services such as e g co2 storage we analyze the choice of agro biodiversity by risk averse farmers who have access to financial insurance and study the implications for agri environmental policy design when on farm agro biodiversity generates a positive risk externality while increasing environmental risk leads private farmers to increase their level of on farm agro biodiversity the level of agro biodiversity in the laissez faire equilibrium remains inefficiently low we show how either one of two agri environmental policy instruments can cure this risk related market failure an ex ante pigouvian subsidy on on farm agro biodiversity and an ex post compensation payment for the actual provision of public environmental benefits in the absence of regulation welfare may increase rather than decrease with increasing environmental risk if the agroecosystems is characterized by a high natural insurance function low costs and large external benefits of agro biodiversity

valuing forest ecosystem services what we know and what we don t abstract ecosystem services valuation has achieved considerable prominence in research and policy circles in recent years this paper reviews the studies that have tried to estimate the value of forest ecosystem services broadly this study addresses the following questions 1 what insights do these studies provide on the value of forest ecosystems 2 what lessons do they offer from an economic and policy perspective 3 what are the shortcomings of the existing studies and what are the challenges and issues for future research evidence from a cross section of forest sites countries and regions suggests that not only the total valuation of ecosystem services varies widely across studies but also the valuation of individual services this variation suggests that policies to conserve ecosystems and their services should emphasise local contexts and values this paper concludes by discussing the shortcomings of existing studies and suggests that among other things future research should focus on the neglected ecosystem services disservices assess the role of dynamic factors and environmental catastrophes on the provision of ecosystem services and assess the benefits of keeping forests intact versus converting them to alternative uses

optimal conservation extinction debt and the augmented quasi option value abstract optimal conversion defines rules that determine the rate at which land is irreversibly moved out of conservation into production what are the implications on these rules of allowing for a feedback between conversion decisions and the stochasticity of conservation benefits we address this question using the well known ecological mechanism of extinction debt as an illustration this yields a model with a controlled diffusion process at its core we solve this model using a real options approach which leads to the conventional conversion rule as a special case calibrating the model to a specific case costa rica we demonstrate the presence of an augmented quasi option value the size of this value depends on the strength of the feedback

a new database on human capital stock in developing and industrial countries sources methodology and results abstract the paper describes the techniques and data adopted for the construction of a new series of estimates of the stock of education in 85 countries over 28 years 1960 1987 the series are built from enrollment data using the perpetual inventory method adjusted for mortality estimates are corrected for grade repetition among school goers and country specific drop out rates for primary and secondary students enrollment data series used start as far back as 1930 for most countries and even earlier for others this reduces the need for backward extrapolation of enrollments to provide the initial estimates of the investment inventory

farm level economic analysis incorporating stochastic environmental risk assessment a farm level risk programming framework is presented which evaluates income environmental risk tradeoffs this framework uses a time series of environmental risk indices to incorporate the stochastic multiattribute characteristics of environmental outcomes associated with agricultural production practices the model is applied to a representative farm in the oklahoma panhandle region of the central high plains results indicate that expected income is sensitive to nitrate loading restrictions and relatively less sensitive to pesticide loading restrictions results also indicate that prescriptions derived using deterministic environmental risk measures may ignore significant probabilities of exceeding an environmental standard

an empirical refinement of the relationship between growth and volatility the link between business cycle volatility and the long run growth rate has received increasing attention in the literature over the last ten years yet neither is there a theoretical consensus nor consistent empirical evidence that would lead us to believe the relationship is positive negative or nonexistent either within broadly defined regions or over time this study investigates a possible cause for this phenomenon what we find is that out of 14 popularly defined sub regions only 7 can be constrained over time within the respective sub region while only two broadly defined regional classifications are justified we did find that the grouping of oecd countries is statistically valid but only if the relationship is allowed to vary over time we suggest a refinement of the current empirical work that takes into account both more narrowly defined regional and time parametric heterogeneity

specifying human capital a review of the measures of the stock of human capital used in empiricalgrowth research including adult literacy rates school enrollmentratios and average years of schooling of the working age population reveals that human capital is mostly poorly proxied the simple use ofthe most common proxy average years of schooling misspecifies therelationship between education and the stock of human capital based onhuman capital theory the specification of human capital is extended toallow for decreasing returns to education and for differences in thequality of a year of education the different specifications give riseto hugely differing measures of the stock of human capital acrosscountries and development accounting results show that misspecifiedhuman capital measures can lead to severe underestimation of thedevelopment effect of human capital

human capital in spain an estimate of educational attainment in this article an alternative methodology is proposed for obtaining long time series data for a human capital indicator based on the average number of years of education of the working age population in contrast to previous studies we use labour force survey microdata relating to the level of education actually completed in order to construct temporal profiles of educational attainment and thus avoid the need to interpolate from censuses to illustrate the method proposed we evaluate the average number of years of education of the spanish working age population for the period 1910 to 2000

participation in the world s first clean development mechanism forest project the role of property rights social capital and contractual rules abstract clean development mechanism cdm forest projects are perceived as an attractive way to both help mitigate climate change and transfer income to rural poor however to engender participation of small scale producers a cdm forest project must offer sufficient incentives while minimizing their costs of participation all the while respecting the need for additionality property rights social capital and contractual rules are critical in the success of cdm forest projects in this paper we ask what factors affect participation in the world s first cdm project established in guangxi province china using village level surveys we find that although the project facilitates participation through carbon pooling and a share holding system much of the project land remains unforested we find that the primary reasons for the unforested regions are constrained contractual rules property rights allocation disputes and low levels of social capital in some villages

the determinants of equilibrium unemployment in britain a reply in my original paper nickell i982 r analyse a theoretical model concerned with flows into and out of unemployment consequent on this analysis i estimate equations which explain the quarterly inflow and outflow rates i e inflow employment and outflow unemployment in the first section of his comments price i985 price rightly points out that such rates cannot be thought of as quarterly probabilities because of the length of the time interval involved on the other hand if it is thought to be helpful the probability interpretation could be sustained to a high degree of approximation if one thought of the quarterly rates as the average daily probability times the number of days in a quarter however since this issue is of no significance vis a vis the original paper i shall turn to the second section of price s comment which deals with my results his first point is concerned with the degree of serial correlation in the residuals in my paper i report durbin watson and box pierce tests the former being a small sample test the latter an asymptotic test neither test rejects the null in either equation price reports that large sample versions of the lm test reject the null in both equations with the outflow rate equation coming off worst the large sample lm test for nth order autocorrelation is based on the r2 from a regression of the fitted residuals on n lags of itself plus all the regressors in the outflow equation there are i5 regressors and 44 observations in order to include n lags on the residuals n observations must be dropped and the regression used to generate the lm test then includes i5 n variables on the right and uses 44n observations the number of degrees of freedom remaining is thus 292n so even with the test for first order serial correlation we have only 27 degrees of freedom remaining and when we arrive at twelfth order serial correlation we are down to 5 degrees of freedom this might explain why the first order lm test is somewhat at odds with the durbinwatson test which is after all a perfectly reasonable small sample test of serial correlation in this particular equation so i do not find this to be convincing evidence that the model originally reported is misspecified however the fact that price finds evidence of parameter instability across the middle of the sample is a more serious matter this is always a potential problem with short samples and lots of regressors since the equations are more or less bound to be overfitted i am guilty as charged on this count the next section of price s comment is concerned for the most part with the outflow rate equation in essence he objects to my running a regression to explain the log outflow rate log ot ut 0 outflow u unemployment in spite of the fact that it is a natural consequence of the theory to back up his i96

an analysis of short run response of export and domestic agriculture in sub saharan africa abstract short run responses of export and domestic shares of total agricultural output to changes in stocks of domestic savings sav development assistance oda private foreign commercial capital pfx and other variables is investigated a profit function approach is used time series data for 19 sub saharan african countries are pooled into three panels using similarities in changes in economic policy regime statistical evidence suggests that for the panel of countries that were undertaking liberalized economic reforms the slope coefficients of some of the variables in the models have changed significantly between 1970 1980 and 1981 1993 for the 1981 1993 period the impacts of oda pfx and sav on export and domestic shares were different for this panel the effect of increases in agricultural labor was different across the three panels there is also evidence that productivity growth in the export agriculture sub sector is negative in all the groups it is recommended that to halt the decline in export share of agricultural output in the group of countries that have undertaken substantial improvements in economic policy environment efforts must be made to reduce the negative impact of domestic savings and agricultural labor while at the same time working to reduce the bias of development assistance against food security