dynamic corn supply functions a model with explicit optimization both static and dynamic models have been used to estimate aggregate supply elasticities for annual crops the early studies relied on static singleequation models in a few variables assumed static price expectations e g kohls and paarlberg and produced very small estimates of own price supply elasticities e g 0 07 for corn nerlove 1956 1958a and nerlove and addison showed that agricultural supply models incorporating adaptive price expectations and or dynamic resource adjustment produced larger estimates of supply elasticities for corn and other agricultural commodities additionally they showed that supply elasticities obtained from static models need not be bounded by the short run and long run supply elasticities of

bounded price variation and rational expectations in endogenous switching model of the u s corn market a model that includes bounded price variation and rational expectations by producers is estimated for the u s corn market the resulting model specification is highly nonlinear though since the probability of market equilibrium must be determined endogenously unlike previous research the cross equation restrictions implied by the rational expectations hypothesis are incorporated in the bounded prices model by using fair and taylor s 1983 procedure for obtaining maximum likelihood estimates of nonlinear rational expectations models the resulting model is compared against a standard equilibrium model with naive expectations the results show the bounded prices model is a superior specification copyright 1989 by mit press

nonrenewable resources with switching costs abstract this paper considers a firm s decision to commence or to suspend extraction of a nonrenewable resource when there are start up or shut down costs for a given level of reserves the critical price that would cause an inactive mine to be opened exceeds the price that would induce an active mine to be closed as one would expect greater switching costs cause firms to be less inclined to change status this impact can be substantial even for modest switching costs possible implications of switching costs are considered including the potential for firms to abandon mines with economically valuable remaining reserves

municipal solid waste market competition and the eu policy two of the main pillars of the eu solid waste policy are the proximity principle and the self sufficiency principle according to those waste should be disposed as close as possible to where it has been produced a likely effect of such provision is to prevent competition from neighbouring areas and increase the market power of local disposers with possible undesirable consequences for other firms in the vertical chain we show through a simple spatial model that one additional effect of the proximity principle and of the self sufficiency principle is to provide an incentive to collectors and waste producers to increase the amount of separated waste

agricultural price instability a survey of competing explanations and remedies there are two explanations for agricultural price dynamics one follows cobweb logic and models fluctuations driven by expectation errors but emphasises that these expectations create complex dynamics and possibly chaos the other stems from the rational expectations tradition of dynamics driven by real shocks the empirical evidence tends to support the latter but is not conclusive the rational expectations model generates an optimal dynamic path from which no improvement can be expected from public intervention however if we take account of all the potential market failures in agricultural markets and especially in developing countries this conclusion might require some qualifications although an appropriate policy design for stability has still to be achieved this paper surveys the positive and normative literature on agricultural prices highlighting empirical evidence and identifying remaining unresolved issues

asymmetric price adjustment and economic fluctuations this paper considers a possible explanation for asymmetric adjustment of nominal prices the authors present a menu cost model in which positive trend inflation causes firms relative prices to decline automatically between price adjustments in this environment shocks that raise firms desired prices trigger larger price responses than shocks that lower desired prices the authors use this model of asymmetric adjustment to address three issues in macroeconomics the effects of aggregate demand the effects of sectoral shocks and the optimal rate of inflation copyright 1994 by royal economic society

drivers and triggers of international food price spikes and volatility the objective of this study is to explore empirical evidence about the quantitative importance of supply demand and market shocks for price changes in international food commodity markets to this end it distinguishes between root conditional and internal drivers of price changes using three empirical models 1 a price spike model in which monthly food price returns spikes are estimated against oil prices supply and demand shocks and excessive speculative activity 2 a volatility model in which annualized monthly variability of food prices is estimated against the same set of variables plus a financial crisis index and 3 a trigger model that estimates extreme values of price spikes and volatility using quantile regressions the results point to increasing linkages between food energy and financial markets this explains much of the observed food price spikes and volatility while financial speculation amplifies short term price spikes oil price volatility intensifies medium term price volatility

acreage decisions under risk the case of corn and soybeans an acreage supply response model is developed under expected utility maximization the resulting framework is used to specify and estimate a system of risk responsive acreage equations for corn and soybeans in the united states particular attention is given to the truncation effects of government price supports on the distribution of corn and soybean prices also a wealth variable is included in the acreage equations the empirical results indicate that risk and wealth variables play an important role in cornsoybean acreage decisions the analysis also shows that cross commodity risk reduction is important in acreage allocation decisions

looking for evidence of speculative stockholding in commodity markets abstract the theory of commodity price with speculative storage predicts that prices are a two regime process depending on whether or not inventories are held the price process is nonlinear in that it is nondifferentiable at some p which separates the data into a history independent regime and an autoregressive process this paper looks for evidence of nonlinearity in the price data and tests the theory in the context of threshold autoregressive models under the assumption that shocks to harvest are i i d while we find evidence for regime specific behavior we also find the degree of persistence in the stockout regime to be much stronger than that predicted by theory

estimation of dynamic nonlinear rational expectations models of primary commodity markets with stochastic dynamic programming and disequilibrium maximum likelihood methods are combined to estimate a dynamic nonlinear rational expectations model of a market for a storable primary commodity the estimation model captures the inherently nonlinear structure of private stockholding dynamics the disequilibrium effects of government buffer stock intervention and the impact of price expectations and risk on private supply and stockholding decisions copyright 1993 by mit press

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

rockets and feathers the asymmetric speed of adjustment of uk retail gasoline prices to cost changes abstract the paper develops a quadratic quantity adjustment model to test the hypothesis put forward in the recent monopolies and mergers commission report that the speed of adjustment of uk retail gasoline prices to cost changes is more rapid when costs rise than when they fall and that the adjustment path is more concentrated around the mean value on the upswing using data from 1982 to 1989 evidence of faster and more concentrated responses to cost increases were found

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

agon and ag ec styles of persuasion in agricultural economics it is a tradition that these addresses be given by an outsider i speak as an outsider in praise of agricultural economics an outsider presuming to praise could be accused of condescension but i assure you i come by a favorable opinion of the field honestly i am practically an insider maternal relations own farms in illinois near watseka the same roger gray of the food research institute whom president elect johnston mentions in his paper is my second cousin once removed in england i have worked as an agricultural laborer once in vermont i milked a cow ag econ is in my blood

outsourcing and capacity planning in an uncertain global environment firms employing offshore outsourcing strategies may face both exchange rate and demand uncertainties in this paper we show that the firms may benefit from operational option to switch production by keeping capacities with both domestic and foreign suppliers the value of the operational option increases as the exchange rate uncertainty or demand uncertainty increases in addition when the firms become risk averse they may use domestic capacity to hedge against offshore capacity as a result the firms may choose to hold local capacity even if it exhibits negative marginal contribution to the profit furthermore risk averse firms may keep more total capacity than risk neutral firms

valuing flexibility as a complex option this paper develops an approach for valuing flexible production systems using contingent claims pricing demand curves for our model s underlying assets output products may be downward sloping in contrast with the standard option pricing assumption also our marginal production exercise costs may be increasing in addition we allow for multiple products and a production capacity constraint these elements of the model result in complex exercise decisions for the contingent claims which comprise the production system s value we illustrate our approach by valuing a flexible system that produces two products which have profit margin functions with stochastic parameters

market structure and the nature of price rigidity evidence from the market for consumer deposits panel data on consumer bank deposit interest rates reveal asymmetric impacts of market concentration on the dynamic adjustment of prices to shocks banks in concentrated markets are slower to raise interest rates on deposits in response to rising market interest rates but are faster to reduce them in response to declining market interest rates thus banks with market power skim off surplus on movements in both directions since deposit interest rates are inversely related to the price charged by banks for deposits the results suggest that downward price rigidity and upward price flexibility are a consequence of market concentration

a post consumer waste management model for determining optimal levels of recycling and landfilling the present study examines the optimal recycling rate for municipal solid waste first an optimal control model is developed to account for the physical costs of recycling the social costs of landfilling and consumers environmental preferences second an optimal solution is simulated using waste disposal data from the helsinki region in finland the benefits from recycling are included in the simulation using the results of a recent contingent valuation study the results of the present research suggest that mandates for achieving 50 recycling in municipalities are not far fetched and are both economically and environmentally justified

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

prices rise faster than they fall output prices tend to respond faster to input increases than to decreases this tendency is found in more than two of every three markets examined it is found as frequently in producer goods markets as in consumer goods markets in both kinds of markets the asymmetric response to cost shocks is substantial and durable on average the immediate response to a positive cost shock is at least twice the response to a negative shock and that difference is sustained for at least five to eight months unlike past studies which documented similar asymmetries in selected markets gasoline agricultural products etc this one uses large samples of diverse products 77 consumer and 165 producer goods accordingly the results suggest a gap in an essential part of economic theory as a start on filling this gap the study finds no asymmetry in the resonse of an individual decision maker a supermarket chain to its costs but it finds above average asymmetry where a cost shock is filtered through a fragmented w

on the pitfalls of multi year rollover hedges the case of hedge to arrive contracts it is shown that it is theoretically infeasible for multi year rollover hedge to arrive contracts and for rollover hedges in general to succeed at locking in high current prices for crops to be harvested one or more years into the future the study utilizes 107 years of data to present strong empirical evidence that the corn market behaves remarkably similarly to what price theory predicts results also confirm that short historical time series are unreliable for predicting rare events hence empirical studies of risk management contracts capitalizing on unusual occurrences should use samples sufficiently large to contain a meaningful number of relevant observations copyright 2001 oxford university press

the persistence of profit a new empirical interpretation abstract inferences are drawn about the true coefficients which correspond to sample estimates of a persistence of profit model fitted over a large number of firms this is done by generating simulated sampling distributions for the estimators over various distributional assumptions profits seem to be stationary for all firms with an average short run persistence coefficient of 0 59 higher than most previous estimates long run profit rates differ between firms although by less than is suggested by direct observation of variations in mean profit rates calculated over time short run persistence appears to be inversely related to unsystematic variation in profit

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

commodity price comovement and financial speculation the case of cotton recent booms and busts in commodity prices have generated concerns that financial speculation causes excessive commodity price comovement driving prices away from levels implied by supply and demand under rational expectations we develop a structural vector autoregression model of a commodity futures market and use it to explain two recent spikes in cotton prices in doing so we make two contributions to the literature on commodity price dynamics first we estimate the extent to which cotton price booms and busts can be attributed to comovement with other commodities finding such comovement would be necessary but would not be sufficient evidence to establish that broad based financial speculation drives commodity prices second after controlling for aggregate demand and comovement we develop a new method to point identify shocks to precautionary demand for cotton separately from shocks to current supply and demand to do so we use differences in volatility across time implied by the rational expectations competitive storage model we find limited evidence that financial speculation caused cotton prices to spike in 2008 or 2011 we conclude that the 2008 price spike was driven mostly by precautionary demand for cotton and the 2011 spike was caused by a net supply shortfall

the convergence of profits in the long run inter firm and inter industry comparisons this paper considers the extent to which the short run dynamic behavior and long run equilibrium levels of profitability differ among firms within the same industry movements in profits are modeled in terms of firm specific deviations from average industry profits and industry specific deviations from economy wide average returns applied to a sample of 217 large u k firms 1951 77 the results suggest that considerable heterogeneities exist within most industries that is most firms profitability experience differs considerably from those of their closest rivals copyright 1987 by blackwell publishing ltd

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

bubbles in food commodity markets four decades of evidence abstract we use daily prices from individual futures contracts to test whether speculative bubbles exist in 12 agricultural markets and to identify whether patterns of bubble behavior exist over time the samples begin as far back as 1970 and run through 2011 the findings demonstrate that all 12 agricultural markets experienced multiple periods of price explosiveness however bubble episodes represent a very small portion between 1 5 and 2 of price behavior during the 42 year period in addition most bubbles are short lived with 80 90 lasting fewer than 10 days though receiving far less attention negative bubbles contribute significantly to price behavior accounting for more than one third of explosive episodes markets over react during both positive and negative explosive episodes leading to a correction as they return to a random walk this adjustment back to fundamental values is most pronounced with positive bubbles particularly in the earlier part of the sample while the magnitudes of the corrections are generally small there were a few instances of significant increases in prices and large over reactions most notably in the softs e g cocoa 1973 coffee 1994 cotton 2010 we also find that explosive periods did not become more common or last longer in the second half of the sample period and that the most recent bubble episodes may not have been as severe as in mid 1970s

optimal pricing of depletable replaceable resources the case of landfill tipping fees abstract we develop a general model for pricing a depletable replaceable asset and discuss its application in determining optimal tipping fees for a sanitary landfill we show that the optimal fee includes a component that grows at the real interest rate as space in the landfill is depleted and then drops when a new landfill is built because the scarcity cost of landfill space increases as the landfill is filled it may be optimal to delay a waste reduction program such as recycling composting or incineration until the landfill is partially full

how much intraregional exchange rate variability could a currency union remove the case of asean 3 abstract a multilateral currency union removes intraregional exchange rates but not the union rate the pre union intraregional exchange rate variability is thus latent a two step procedure is developed to measure this the measured variables are used to model inflation and intraregional trade growth of individual union members counterfactual simulations of the union impact are carried out using the resulting models application to asean 3 shows that the intraregional variability mainly consists of short run exchange rate shocks that the variability significantly affects inflation and intraregional trade of major asean 3 members and that a union would reduce inflation and promote trade regionwide

fixed versus flexible production systems a real options analysis in this work we address investment decisions in production systems by using real options as is standard in literature the stochastic variable is assumed to be normally distributed and then approximated by a binomial distribution resulting in a binomial lattice the methodology establishes a discrete valued lattice of possible future values of the underlying stochastic variable demand in our case and then computes the project value we have developed and implemented stochastic dynamic programming models both for fixed and flexible capacity systems in the former case we consider three standard options the option to postpone investment the option to abandon investment and the option to temporarily shut down production for the latter case we introduce the option of corrective action in terms of production capacity that the management can take during the project by considering the existence of one of the following i a capacity expansion option ii a capacity contraction option or iii an option considering both expansion and contraction the full flexible capacity model where both the contraction and expansion options exist leads as expected to a better project predicted value and thus investment policy however we have also found that the capacity strategy obtained from the flexible capacity model when applied to specific demand data series often does not lead to a better investment decision this might seem surprising at first but it can be explained by the inaccuracy of the binomial model the binomial model tends to undervalue future decreases in the stochastic variable demand while at the same time tending to overvalue an increase in future demand values

what explains price volatility changes in commodity markets answers from the world palm oil market abstract what are the sources of commodity price volatility changes based on observation of the palm oil market 1818 1999 our hypothesis is that the superimposition of short distance operators located near the export supply whose expectation horizon is limited to a few weeks and long distance operators further from the export supply whose expectation horizon exceeds six months to one year is responsible for volatility changes and market instability because of the superimposition of expectations horizons volatility grows along with the development of short distance trade we support this hypothesis using a trader behavior model derived from day and huang j econ behavior org 14 1990 299 and day complex economic dynamics vol i mit press cambridge ma our simulation results challenge the argument that trade liberalization and market enlargement necessarily reduce commodity prices volatility

modeling expectations of bounded prices an application to the market for corn the presence of farm programs should directly affect the expectations of producers this paper analyzes the formation of price expectations when price supports constitute an effective lower bound on the distribution of the expectations we first investigate what the expected price would be if the usual rational expectations formula is used this leads to a relationship that is not estimable we suggest two alternatives one based on a tobit approximation and the other based on a perfect prediction of when the support is going to be effective using a simplified model of the u s corn market the methodology is demonstrated and compared to an alternative method of using futures prices as the expectation of harvest price the analysis of supply response for the major u s field crops is made difficult due to government intervention in these markets this intervention has been characterized by the use of price supports acreage diversion storage incentives etc during the last thirty years many studies have analyzed producer behavior in the presence of governmental involvement such studies have typically been concerned with modeling the effect of supports and diversions in an ex post sense rather than with how producers used the knowledge of farm programs to form their expectations if producers are rational economic agents their expectations of harvest prices should be conditioned both by free market forces and the type and degree of governmental intervention in the market of course farm programs have varied in nature and extent during the past thirty years and it is doubtful that any structural model could capture their complexities in this paper we attempt to introduce rational expectations in a simplified model of the u s corn market in essence we focus on the formation of price expectations when price supports constitute an effective lower bound on the distribution of the expectations we proceed by developing a theoretical model that connects the rational expectations model with a model of bounded price variation it is shown that one representation that may characterize the corn market is a triangular structural system with endogenous switching a full information maximum likelihood estimator is proposed for the system next an empirical model is specified and estimated the model is evaluated in comparison to an augmented model that contains a futures price so that some inferences may be made concerning the rational expectations model s success in summarizing relevant market information expectations under bounded prices consider a market that may be represented by a simple supply and demand system q a pt a2w el supply function pt b qt b2xt e2t demand function 1 where p and q represent market price and quantity w and x represent supply and demand shifters and p represents the rational expectation of product price at the time production decisions are made note that this system has a familiar recursive structure when the expected price variable is specified in terms of one or more lagged prices when the restricted reduced form of the structural system is solved for in terms of the expected price and this expression is used to replace pj wallis 1980 then models similar to those of goodwin and sheifrin 1982 and shonkwiler and emerson 1982

do gasoline prices respond asymmetrically to crude oil price changes the authors test and confirm that retail gasoline prices respond more quickly to increases than to decreases in crude oil prices among the possible sources of this asymmetry are production inventory adjustment lags and market power of some sellers by analyzing price transmission at different points in the distribution chain the authors attempt to shed light on these theories spot prices for generic gasoline show asymmetry in responding to crude oil price changes which may reflect inventory adjustment effects asymmetry also appears in the response of retail prices to wholesale price changes possibly indicating short run market power among retailers

the value of public information in storable commodity markets application to the soybean market this article provides a framework to estimate the potential effects and benefits of the provision of market information in storable commodity markets this framework is applied to the case of production forecasts for the soybean market a rational expectations storage model of the global soybean market accounting for both inter annual and intra annual market dynamics is built shocks that occur between planting and harvesting affect the size of the potential harvest estimates of the size of these shocks are reported publicly and affect the market equilibrium through adjustments to stock levels by varying counterfactually the observability of seasonal shocks we can estimate the efficiency gains related to the availability of advance information they are equivalent to 2 of storage costs the reduction of stock levels being the main channel explaining the welfare gains the presence of advance information has a limited effect on inter annual price volatility but redistributes price volatility during the season increasing it just before harvest when almost all news has been received and stocks are tight and decreasing it after harvest the effect of news shocks is stronger on higher order moments of the distribution with a strong decrease in skewness and kurtosis related to the lower frequency of price spikes

robust portfolio choice with learning in the framework of regret single period case in this paper we formulate a single period portfolio choice problem with parameter uncertainty in the framework of relative regret relative regret evaluates a portfolio by comparing its return to a family of benchmarks where the benchmarks are the wealths of fictitious investors who invest optimally given knowledge of the model parameters and is a natural objective when there is concern about parameter uncertainty or model ambiguity the optimal relative regret portfolio is the one that performs well in relation to all the benchmarks over the family of possible parameter values we analyze this problem using convex duality and show that it is equivalent to a bayesian problem where the lagrange multipliers play the role of the prior distribution and the learning model involves bayesian updating of these lagrange multipliers prior this bayesian problem is unusual in that the prior distribution is endogenously chosen by solving the dual optimization problem for the lagrange multipliers and the objective function involves the family of benchmarks from the relative regret problem these results show that regret is a natural means by which robust decision making and learning can be combined this paper was accepted by dimitris bertsimas optimization

implications of commodity price behavior for marketing strategies prices of agricultural commodities have systematic dynamic components and many agricultural economists have thought that forecasts of this behavior ought to aid marketing decisions thereby raising producers returns but if commodity markets are pricing efficient then noncompetitive profit opportunities should be quickly arbitraged away thus a debate exists about the magnitude of the likely benefits of various marketing strategies herein we address the question what does the literature about commodity price behavior contribute to our understanding of the expected outcomes from alternative marketing strategies our brief answer is as follows spot prices in u s commodity markets typically behave in a way that is consistent with efficient markets systematic behavior persists because of the costs of arbitrage hence price forecasts in the public domain cannot be used to produce returns which are consistently above the competitive norm although low cost strategies to manage price risk exist evaluating the evidence on these topics is not easy however because the price generating processes are complex sometimes prices seem to behave as if a market is inefficient advice based on analyses using short samples should be used with great caution the remainder of the article elaborates

generalized optimal hedge ratio estimation a generalized approach to estimating optimal hedge ratios on futures markets is developed the generalized approach is not difficult to apply and provides a framework for evaluating the appropriateness of conventional simple regression approaches to optimal hedge ratio estimation in an application to storage hedging of corn soybeans and wheat it is found that simple regression using price levels or returns leads to errors in optimal hedge ratio estimation but that simple regression using price changes provides reasonably accurate estimates

the inefficiency of interest rate subsidies in commodity price stabilization interest rate subsidies have been used to stimulate commodity stockholding with the intention of stabilizing prices however reductions in price variability can be achieved at less government cost using a direct storage subsidy and it is possible that an interest rate subsidy will increase price variability even though the interest subsidy increases mean stocks held these results are demonstrated using a stochastic dynamic programming model of optimal private storage with parameter values relevant to agricultural commodity markets and with particular reference to the u s soybean market

autoregressive conditional heteroscedasticity in commodity spot prices muth s 1961 rational expectations model of commodity markets implies that inventory carryover creates arch processes in prices the model also indicates that the expected price variance is an explanatory variable in price regressions hypotheses were tested on price data of twenty commodities using a variation of engle et al 1987 arch m technique an arch process was found in storable and not in non storable commodity data as expected however changes in expected price variance have no significant impact on price copyright 2001 john wiley sons ltd

the standard error of regressions statistical significance as used in economics has weak theoretical justification in particular it merges statistical and substantive significance the 182 papers using regression analysis in the american economic review in the 1980s were tested against 19 criteria for the accepted use of statistical significance most some three quarters of the papers did poorly likewise textbooks in econometrics do not distinguish statistical and economic significance statistical significance should not be the focus of empirical economics

estimating a nonlinear rational expectations commodity price model with unobservable state variables this paper is concerned with the estimation of a model in which a possibly serially correlated stochastic process the harvest of an agricultural commodity generates a competitive price in a market comprising both final consumers and risk neutral speculators who can store the commodity at a cost in the anticipation of profit because storage cannot be negative the relationship between prices and harvests is inherently nonlinear and is an unpromising candidate for a linear quadratic model or for linearization more generally instead we calculate numerically a policy function in which price is a function of two unobservable state variables the harvest and current availability and we use the result to fit the price data

extent and possible causes of intrayear agricultural commodity price volatility wheat corn rice soybeans and cotton experienced higher volatility in the second half of the 2000s for the sample at hand the unit root tests only validate a new period of high volatility for wheat and cotton if in the next couple of years however corn rice and soybeans maintain their higher volatility a new period of high volatility may also be validated statistically regarding the factors driving the intrayear volatility gmm estimates show that commodity market fundamentals i e the stock to use ratio and to a lesser extent the degree of internationalization are the most systematically statistically significant coefficients among commodities over time consecutive low stock to use ratios and a thin international market provoke typically high volatility speculative activity and liquidity in the agricultural derivative market have a stabilizing effect on the spot price if any finally common macro factors significantly impact volatility especially the volatility of petrol and of exchange rates their dispersion importance over the sample is quite sizeable however it is difficult to establish a link between on the one hand loose monetary policy business cycle and inflation and on the other hand commodity price volatility as the sign of the estimated coefficient changes depending on the commodity and the estimated elasticities are quite low

price dynamics in biological production processes exposed to environmental shocks this paper demonstrates a mechanism by which environmental shocks in biological production processes can lead to extreme price movements and thus be a contributing factor to short term food price volatility in biological production processes environmental shocks can lead to a stock out when the harvest transitions to a new stock year class with a different marginal value the result in the market is a temporary price spike or bubble bounded by the marginal value of the new stock we highlight this phenomenon in a cohort or year class biological production setting each year class in the model is a finite non renewable capital stock and capital theory is used to solve for the stochastic dynamic competitive equilibrium the model is parameterized to be representative of the norwegian salmon aquaculture industry results suggest that the model can replicate much of the observed patterns in price harvest and capital stock dynamics including the infrequent occurrence of extremely high prices in the market

commodity prices and unit root tests price theory suggests that commodity prices should be stationary series yet tests for unit roots rather frequently imply that these prices are not stationary this seeming inconsistency is investigated by applying alternative specifications of unit root tests to prices of corn soybeans barrows and gilts and milk the preponderance of evidence suggests that nominal prices do not have unit roots but the results are sensitive to the specification of the test equation accounting for a structural change that shifts the mean appears to be an important issue in unit root tests

the value of public information in commodity futures markets abstract the informational value of u s department of agriculture usda corn and soybean production forecasts is investigated for the period 1971 1992 three tests of informational content are applied overall the results suggest usda corn and soybean forecasts provide valuable information to participants in commodity futures markets this value does appear to have declined especially since the mid 1980s

the behavior of bid ask spreads in the electronically traded corn futures market this is the first paper to analyze liquidity costs in agricultural futures markets based on the observed bid ask spread bas faced by market participants the results reveal a highly liquid corn market that mostly offers order execution at minimum cost the bas responds negatively to volume and positively to price volatility but also affects volume traded and price volatility while statistically significant these responses on a cents bushel or a percentage basis are generally small liquidity costs are also virtually impervious to short term changes in demand for spreading and trend following trader activity as well as differences from day of the week changes in market activity much larger cents bushel and percentage changes in bas occur during commodity index trader roll periods and on usda report release days the roll period findings indicate a sunshine trading effect while announcement effects identify the importance of unexpected information and adverse selection on order execution costs overall our research demonstrates that the transition to electronic trading in the corn futures market has led to low and stable liquidity costs despite the market turbulence in 2008 2009

announcement effects and the theory of storage an empirical study of lumber futures we investigate how lumber futures returns are affected by monthly housing starts announcements and analyze the dependence of the response on lumber inventories and time to delivery to do so we develop a generalized least squares gls method to jointly analyze simultaneously traded contracts we find that increases in the unanticipated component of housing starts announcements increase returns on lumber futures contracts further and as predicted by the theory of storage but previously unrecorded the effects of housing starts shocks decline with lumber inventories there is also a time to delivery effect near delivery contracts respond more sharply to housing starts news than do farther out contracts

u s farm policy and the volatility of commodity prices and farm revenues a dynamic three commodity rational expectations storage model is used to compare the impact of the federal agricultural improvement and reform fair act of 1996 with a free market policy and with pre fair policies results suggest that fair did not lead to significant increases in long run price volatility or revenue volatility the main impact of pre fair relative to the free market regime was to substitute government storage for private storage in a way that did little to support prices or to stabilize farm incomes results also indicate that u s grain market volatility in 1995 2000 was due to fundamental market forces and not to fair copyright 2002 oxford university press

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

the rate of return to public sector agricultural r d in the uk 1965 80 1989 the rate of return to public sector agricultural r d in the uk 1965 80 applied economics vol 21 no 8 pp 1063 1086

what causes commodity price backwardation a recently proposed explanation for futures price backwardation is examined an equilibrium model with spatial heterogeneity leads to the interpretation of backwardations as mismeasurement by the analyst however the model predicts that backwardations are more affected by the location of stocks than by their aggregate level empirical examination of the united states corn market fails to support this result

impact on corn prices from reduced biofuel mandates press reports indicate that the environmental protection agency may significantly reduce ethanol mandates to levels that can easily be met to gain insight into what this decision implies about the price of corn we use a new model of the corn and rin markets to project corn and ethanol prices and quantities through the 2019 marketing year under two ethanol mandate scenarios the first scenario is the status quo where mandates that can be met with corn ethanol increase to 14 4 billion gallons in 2014 and 15 billion gallons in 2015 and thereafter mandates at this level can only be met using e85 so also included in this scenario is 5 000 new locations where e85 can be purchased the second scenario holds mandates at 13 billion gallons a level that can be met with e10 the price of corn is higher by between 5 and 6 percent about 25 cents per bushel in the higher mandate scenario rin prices are close to zero most of the time in the lower mandate scenario and average between 50 and 60 cents in the higher mandate scenario though the corn price difference is economically meaningful to corn farmers and livestock feeders it is small compared to the price swings that the market has experienced since 2006 this modest change in corn prices from alternative mandate levels suggests that the level of mandate should be determined more by consideration of broad policy objectives rather than the impact on the price of corn of key importance to the advanced biofuel industry is whether policy will support the expansion of biofuels consumption by creating incentives to invest in flex cars and fueling stations that will facilitate expanded consumption of low carbon ethanol consideration of the costs and benefits of creating these incentives as part of a national energy policy is of greater long run importance than the impact of mandates on the price of corn

does food safety information impact u s meat demand a theoretical model of consumer response to publicized food safety information on meat demand is developed with an empirical application to u s meat consumption evidence is found for the existence of pre committed levels of consumption seasonal factors time trends and contemporaneous own and cross commodity food safety concerns the average demand response to food safety concerns is small especially in comparison to price effects and to previous estimates of health related issues this small average effect masks periods of significantly larger responses corresponding with prominent food safety events but these larger impacts are short lived with no apparent food safety lagged effects on food safety concerns in the united states have dramatically increased in the past decade with regard to incidences of contaminated meat products concerns have arisen because contaminated meat products can result in serious risk to the well being and health of consumers contamination comes from a myriad of sources including but not limited to outbreaks of listeria monocytogenes escherichia coli e coli and salmonella centers for disease control and prevention food safety problems are not isolated to the united states as other unsafe contaminates in meats have emerged across the world including highly publicized outbreaks of bovine spongiform encephalopathy bse in europe the potential impacts of publicized food safety events on consumer s demand for meat products in the united states include own effects on the demand for the contaminated meat involved as well as cross effects impacting the demand for other meats the objective of this article is to investigate whether publicized food safety concerns surrounding beef pork and poultry chicken and turkey have impacted meat consumption food safety indices are constructed separately for beef pork and poultry

impact of sourcing flexibility on the outsourcing of services under demand uncertainty abstract this paper investigates the relationship between market conditions and the value and use of sourcing flexibility for service processes we develop and analyze a series of models and we derive expressions for the optimal switching decision the value of the option to outsource the value of the option to backsource and the probability and timing of switches between the alternative sources one contribution is the models and associated derivations which are largely new to the literature and may serve as a tool to support service sourcing plans and decisions the second contribution is a series of results with managerial implications 1 the probability of outsourcing is generally increasing in volatility for high skill process and decreasing in volatility for low skill processes earlier work has found that the hysteresis band is increasing in volatility which is interpreted as an indicator of increasing organizational inertia we also find that the hysteresis band is increasing in volatility but interestingly for the case of high skill processes organizational inertia tends to be decreasing in volatility 2 the option to backsource is generally more valuable for high skill processes than for low skill processes this result suggests that investments to make it easier to backsource should have a higher priority for high skill processes 3 the value of the option to backsource a high skill service process can be decreasing in volatility the result suggests that a rather nuanced consideration of volatility is in order when considering investments in the flexibility to backsource a high skill process

a theory of commodity price fluctuations this paper studies the price fluctuations of storable commodities that are traded in open markets and are subject to random shocks to demand or more particularly to supply it relaxes the common assumption that the shocks are identically and independently distributed in favor of temporally dependent and periodic disturbances the existence of a unique stationary rational expectations equilibrium is demonstrated for each of the models analyzed and testable implications of the models are derived an illustrative empirical investigation is then undertaken for the model with periodic disturbances using monthly time series observations for seven commodities over the period 1960 93

landfilling versus backstop recycling when income is growing the paper considers a dynamic model in which an income stream growing over time is optimally divided into consumption andexpenditures on waste disposal the latter being optimally dividedbetween recycling and landfilling recycling is thoughtof as a backstop waste disposal technology it does notrequire landfill space but is a relatively expensive method ofwaste disposal landfilling uses up scarce landfill capacity while conserving landfill space is the major reason themunicipality recycles another motive for recycling might be thatrecycling itself generates utility our analysis suggests thatthe optimal recycling program varies considerably with bothlandfill capacity and initial income for example richermunicipalities are likely to introduce recycling much earlier inthe planning period than poorer municipalities thus whenlegislating recycling national or regional governments must besensitive to the differences between municipalities

do prices respond asymmetrically to cost changes this article investigates price asymmetry by using an almost complete sample of taiwanese industries to see whether output prices respond faster to cost increases than they do to decreases in contrast with the earlier literature the evidence shows that positive price asymmetry cannot be applied to all industries especially those industries with rapid productivity growth the evidence also indicates that firms exhibiting fast slow productivity growth see their prices react less more to cost increases than to cost decreases

why does on farm storage fail to mitigate price volatility we analyze the role of farm stock management on price volatility under liquidity constraints and heterogeneous price expectations in commodity markets speculative behaviors by stockholders tend to reduce price volatility but this is not the case in certain agricultural markets where speculation by farmers regarding decisions to sell or store grain are subject to liquidity constraints and heterogeneous price expectations like stockholders most farmers sell grain if they expect a price drop in the near future but unlike stockholders they are not necessarily able to purchase grain if they expect a price increase in the next period heterogeneous price expectations can also lead to suboptimal storage decisions further increasing price volatility for these reasons the storage management behavior of farmers often fails to mitigate price drops in the way that speculation by stockholders does we merge historical data on maize prices and household storage collected in burkina faso in order to build a dynamic panel over the 2005 2012 period we show that carry over from one season to the next is associated with unexpected price drops during the preceding lean season and that carry over is associated with more frequent unexpected price drops following the subsequent post harvest season this article is protected by copyright all rights reserved

garbage and recycling with endogenous local policy abstract this paper estimates the impact of garbage fees and curbside recycling programs on garbage and recycling amounts without correction for endogenous policy a price per bag of garbage has a negative effect on garbage and a positive cross price effect on recycling correction for endogenous local policy increases the effect of the user fee on garbage and the effect of curbside recycling collection on recycling introducing a fee of 1 per bag is estimated to reduce garbage by 412 pounds per person per year 44 but to increase recycling by only 30 pounds per person per year

the power of bias in economics research we investigate two critical dimensions of the credibility of empirical economics research statistical power and bias we survey 159 empirical economics literatures that draw upon 64 076 estimates of economic parameters reported in more than 6 700 empirical studies half of the research areas have nearly 90 of their results under powered the median statistical power is 18 or less a simple weighted average of those reported results that are adequately powered power 80 reveals that nearly 80 of the reported effects in these empirical economics literatures are exaggerated typically by a factor of two and with one third inflated by a factor of four or more

estimating supply response in the presence of farm programs previous empirical research on crop supply response has given insufficient attention to the fundamentally different nature of supply response under farm programs versus competitive markets a simple theoretical model is presented which highlights the program participation option in the farmer s acreage allocation decision the model also provides the basis for different expected supply elasticities under free market and farm program regimes for corn and soybeans econometric supply estimation for corn belt states for 1948 80 using a temporally disaggregated approach confirms a greater supply elasticity for corn and a lower supply elasticity for soybeans under acreage restricting feed grain programs

flexible waste management under uncertainty in this paper we use stochastic dynamic programming to model the choice of a municipality which has to design an optimal waste management program under uncertainty about the price of recyclables in the secondary market the municipality can by undertaking an irreversible investment adopt a flexible program which integrates the existing landfill strategy with recycling keeping the option to switch back to landfilling if profitable we determine the optimal share of waste to be recycled and the optimal timing for the investment in such a flexible program we find that adopting a flexible program rather than a non flexible one the municipality i invests in recycling capacity under circumstances where it would not do so otherwise ii invests earlier and iii benefits from a higher expected net present value c 2013 elsevier b v all rights reserved less

competitive storage and commodity price dynamics by buying cheap and selling dear risk neutral commodity speculators can smooth commodity prices and induce serial dependence in price even when none would exist under a simple process of supply and demand commodity prices are variable and strongly positively correlated from one year to the next the variability is often explained by supply factors and the autocorrelation by the activities of speculators we show that this explanation is not consistent with the evidence speculation can substantially increase autocorrelation for prices that are weakly autocorrelated in its absence but not to the high levels that are observed in the data

investments in flexible production capacity abstract we examine the technology and capacity choice problem of a multi output firm facing stochastic demands in a continuous time framework the firm can install output specific capital or at greater cost flexible capital that can be used to produce different outputs investment is irreversible the firm must choose a technology and decide how much capital to install knowing it can add more later as demand evolves we formulate the capacity choice problem as a singular stochastic control problem show that the value of the firm equals the value of its installed capital plus the value of its options to add capacity in the future and derive an optimal investment rule that maximizes the firm s market value we also address the analogous problem for a multi input firm that faces stochastically evolving factor costs and can install input specific or flexible capital

the nature and causes of unemployment in the federal republic of germany since the seventies an empirical investigation the leading economic problem of our time is the high and persistent level of unemployment as of early 1985 there are no signs that the severity of unemployment will weaken within the near future this paper discusses first some basic developments of labour supply and labour demand in the federal republic of germany frg the composition of the labour supply and the structure of the labour demand for persons and hours worked as well as the dynamics of the unemployment pool the next section reviews very briefly some empirical findings explaining the rise in the nairu where we make the distinction between the no shock and the actual nairu following suggestions put by the organizers of the conference we then elaborate on the employment function in the empirically oriented literature most employment functions use labour services i e total hours worked as the dependent variable thus assuming homogeneity of labour demand with respect to jobs and working hours in the german political arena however the distinction between persons employed and hours worked is particularly important first it figures in the employment aims of labour unions who request reductions in weekly working hours in order to induce higher manning second the distinction arises in the context of overtime work for it has been suggested that the reduction in overtime to standard working hours could create more than 1 million new jobs in germany we present some estimated labour demand functions which take into account these two dimensions of labour demand jobs and hours and which are used to elaborate on the direction and magnitude of the employment effects of reductions in wage costs and increases in overtime premia

economic behavior under uncertainty a joint analysis of risk preferences and technology a method is developed to estimate jointly risk preferences and technology under general conditions the approach is illustrated in an application to the analysis of u s corn soybean acreage decisions over time the results provide useful information on the nature of farmers risk preferences and on the influence of price risk and production risk on acreage allocation and farmers welfare copyright 1996 by mit press

the adjustment of the real interest rate to inflation this paper reports tests of carmichael and stebbing s 1983 inverted fisher hypothesis that it is the real rather than the nominal interest rate which adjusts to changes in the expected inflation rate unlike the earlier analysis the results presented here are based on a properly specified estimating equation derived from a short run open economy macro model the results support the inverted fisher hypothesis in the short run but indicate that there is some overshooting of the real interest rate so that after four quarters about 75 of the effect of an expected inflation change is reflected in real rates while the remainder leads to an increase in the nominal rate

what s in a p reassessing best practices for conducting and reporting hypothesis testing research social science research has recently been subject to considerable criticism regarding the validity and power of empirical tests published in leading journals and business scholarship is no exception transparency and replicability of empirical findings are essential to build a cumulative body of scholarly knowledge yet current practices are under increased scrutiny to achieve these objectives jibs is therefore discussing and revising its editorial practices to enhance the validity of empirical research in this editorial we reflect on best practices with respect to conducting reporting and discussing the results of quantitative hypothesis testing research and we develop guidelines for authors to enhance the rigor of their empirical work this will not only help readers to assess empirical evidence comprehensively but also enable subsequent research to build a cumulative body of empirical knowledge

using the competitive storage model to estimate the impact of ethanol and fueling investment on corn prices abstract the impact of biofuel mandates on the prices of commodities used to produce food continues to be a major consideration by policy makers more recently concern about high compliance costs of oil companies due to mandates led to reductions in us biofuel mandates to gain insights into the policy impacts of mandates on agricultural commodity prices and compliance costs requires development of dynamic models that can capture the fact that many agricultural commodities used to produce biofuels can be stored and that flexible compliance mechanisms allow for banking and borrowing of tradable permits us biofuel mandates are enforced using a system of tradable permits called rins rin market dynamics are important because rins can be banked for the future or borrowed from the future corn is the primary u s biofuel feedstock and is storable rational expectations competitive storage models are well suited to capture the dynamic behavior of commodity markets such a model is developed here for corn and rin markets to estimate the impacts of alternative future ethanol mandate levels the model considers corn use for ethanol storage and all other uses in each period accounting for two random variables oil prices and corn yields borrowing and banking provisions of the renewable fuels standard mandate are explicitly integrated into the model we use the model to provide estimates of the impact on corn prices corn plantings and ethanol production under two ethanol mandate scenarios for six marketing years from 2016 17 our scenarios are a combination of volume requirements and infrastructure investment the first scenario is one in which corn ethanol mandates stay the same as required in the current and proposed rfs and additional e85 stations are introduced that allow for compliance with higher mandates the second scenario is one in which no investment occurs and the environmental protection agency reduces the mandate to 13 87 billion gal a level that can just be met with 10 percent ethanol blends comparing the results for two scenarios we find that average corn prices are about 5 to 6 lower with the reduced mandates or about 22 to 30 cents per bushel while average rin prices drop from around 60 to 40 cents per rin

writing as a responsibility of science a reply to laband and taylor it must have been around 1968 in the coffee room of the social science building at chicago that milton friedman and the late george stigler had a jovial and public conversation about being economists that made a big impression on me milton was lamenting the stupidity of tariffs and george broke in from a foot above saying something as follows milton you re such a preacher if people want free trade they ll get it if they don t want it no amount of jawboning by economists will change their minds ah that s where we differ george we admire markets but you think they ve already worked and why not people are self interested and they vote their pocketbooks that s enough to make the market work they bought tariffs tariffs must be what they want no they pursue their interests but often do not know what their interests are people need education the average citizen has no idea that a tariff hurts him education try educating a lobbyist for the textile industry as i said that s where we differ i m a teacher and think that people do some things because they are ignorant and i m a scientist an economic scientist people do what they do because they are wise laband and taylor are stiglerites they believe with dr pangloss that we are in the best of all possible worlds the friedmanites which is my own tribe believe that we could be in it if we would only stop to think the stiglerites assume rationality the friedmanites teach it the stiglerites want to praise the world the friedmanites to change it the stiglerites detest policy what is is the friedmanites embrace it what might be can be the stiglerites are pessimistic in the manner of the master the friedmanites are optimistic laband and taylor the reader can see have a pessimistic and stiglerite explanation of why they have not learned to write competently they defend themselves against advice such as i give in the original paper by saying that it is presumptuous of anyone to claim unique knowledge of the marginal benefit to authors of investment in better presentation if the investment we were talking about was oil drilling i d agree with their economics i ve written a book called if you re so smart that makes a similar point about economic experts going around offering advice but the investment in question here is where laband and taylor go wrong is economic education laband taylor and i are economic educators in the educational industry we are the oil drillers the experts we educate our student roughnecks in the craft teaching them because we do know better or else we should not be standing up there tuth 10 50 12 10 part of the craft laband and taylor agree is attending to elements of presentation so the initial mistake in their paper is economic they think that because some advice is silly and misinformed all advice must be even advice from teachers to students stiglerites tend to drive themselves into such extreme skepticism but no one can actually live as an extreme skeptic i d like to see what laband and taylor say to a student who thinks that markets are bad for you do they agree mildly that it s just a matter of opinion another stigler story george opposed requirements in the graduate curriculum at chicago around 1970 he killed off the requirement in the history of thought which was his own field and tried repeatedly to kill off economic history he succeeded in 1980 when i left the faculty his argument which is heard in many other departments of economics was that the graduate students should be free to choose listen up milton after all they are just like consumers what george and laband and taylor never answered was the teacher s point which milton made in the discussions about the history of thought requirement we are teachers we do know better graduate students because they are not educated already that s why they are students often make bad decisions about their curricula