are we risking too much perspectives on risk in farm modelling risk and uncertainty have been extensively studied by agricultural economists in this paper we question a the predominant use of static frameworks to formally analyse risk b the predominant focus on risk aversion as the motivation for considering risk and c the notion that explicitly probabilistic models are likely to be helpful to farmers in their decision making we pose the question for a risk averse farmer what is the extra value of a recommendation derived from a model that represents risk aversion compared to a model based on risk neutrality the conclusion reached is that for the types of the decision problems most commonly modelled by agricultural economists the extra value of representing risk aversion is commonly very little

secondary capital markets long run growth and the term structure of asset yields an endogenous growth model is presented in which production uses a vector of capital inputs technologies for creating capital of different types vary by gestation period and productivity ownership of gestating capital must be rolled over in secondary capital markets in which transactions are costly we study how reductions in transactions costs affect the equilibrium growth rate the rate of return on saving the volume of activity in secondary capital markets and the term structure of asset yields we give conditions under which reductions in transactions costs result in higher or lower growth rates

equilibrium existence and uniqueness in impure public good models abstract despite widespread application of the impure public good model surprisingly little attention has been given to the model s equilibrium properties this paper presents a proof that clearly shows sufficient conditions for existence and uniqueness of a nash equilibrium

incorporating risk in production analysis risk is the farmer s perennial problem unfortunately agricultural economists have made little progress in analyzing or measuring production risk in ways that provide useful information for farm management therefore it is fair to say that the social returns to existing research on production risk are probably low it is from this perspective that i will discuss incorporating risk in production analysis my purpose is not to survey the literature or to catalog all the ways risk concepts have been incorporated in production models rather i intend to evaluate critically some of the basic concepts and approaches in the literature and to indicate the directions i believe research must take to arrive at a paradigm for incorporating risk in production analysis that could yield higher social returns in my view the conventional conceptual framework used for risk analysis has not led agricultural economists to ask the most important questions about the effects risk has on agricultural decision making the extension of the static neoclassical production model to incorporate price and production uncertainty has led agricultural economists to rationalize observed behavior in terms of the arrow pratt risk aversion concept this approach has led in turn to qualitative comparative static theorems which are appealing to theorists but have little relation to the decision problems farmers face to increase the relevance of their models and methods i believe agricultural economists need to understand specifically how risk affects agricultural production this in turn will suggest how risk affects agricultural decision making and why farmers are or should be concerned with it my analysis of these issues leads me to discount the hypothesis that risk matters primarily because of the psychic disutility it causes rather i hypothesize that risk matters primarily because production is a dynamic phenomenon and therefore production and price uncertainty affect expected productivity and expected income i hypothesize that these firstorder effects are why farmers are and should be concerned with risk the analysis of dynamic uncertain models shows that farmers optimal decisions are affected by risk whether they are risk neutral or risk averse this suggests that dynamic risk neutral models may be more useful than conventional static risk averse models for understanding the role production risk plays in farm management

dyke maintenance and other stories some neglected types of public goods the orthodox summation model of a pure nonexcludable public good assumes that each individual consumes a quantity of public good defined as the sum of all individuals contributions to that good recently hirshleifer 1983 1985 has analyzed models that do not fall within this class at one extreme is the weakestlink in which the total quantity available to each consumer equals the smallest individual contribution at the other is the best shot in which the total quantity available equals the largest individual contribution hirshleifer s example of the weakest link case concerns a circular region of which each citizen owns a pie shaped slice the perimeter is marked by a dyke floods may penetrate the weakest point of the dyke and cause damage equally throughout the region each citizen decides the height and state of repair of that section of the dyke adjoining his piece of land its maintenance constituting his contribution to the public good thus the level of protection enjoyed by all is determined by the least well maintained section of the dyke an example of the best shot case concerns a number of antimissile batteries ringing a city firing at an incoming icbm all that matters is the accuracy of the best shot bliss and nalebuff 1984 discuss dragon slaying as another example of a best shot situation section ii of this paper introduces a class of functions of which the summation weakest link and best shot are examples section iii analyzes the properties of equilibrium when consumers have identical tastes and incomes section iv analyzes the implications of income redistribution in the summation case the equilibrium is unaffected by the initial redistribution over a range and outside that range transfers help the recipient and hurt the donor within the broader class of models however the invariance property does not generally hold and there may be opportunities for paretoimproving income redistribution i give an example similar to the weakest link case in which a pareto improving redistribution is

the econometrics of damage control why specification matters the contribution of damage control agents to production differs fundamentally from that of standard inputs lands labor capital this paper develops an econometric model based on the key characteristics of damage control agents and examines its properties it demonstrates that standard production function specifications overestimate damage control agent productivity and have erroneous implications for the evolution of damage control agent productivity and use in response to changing environments e g the spread of pest resistance it also proposes several alternative specifications and discusses methods for estimating them

fungicide use under risk in swiss wheat production abstract the short run effects of fungicide application on economic risk and the effects of risk on fungicide use in swiss wheat production are empirically explored a quadratic production function model is developed with the help of the moment based approach marginal contributions of fungicides representing controlled inputs and of rain representing uncontrolled inputs to the variances of yield and revenue are analyzed it is not possible to show risk reducing effects of fungicides on yield or revenue at low rain quantities during the vegetation period fungicides have a statistically significant risk increasing effect on revenue increasing risk leads swiss wheat growers to use more fungicide this increase is statistically significant at higher levels of revenue for example when risk is doubled fungicide inputs are raised by 44 at the highest revenue quartile

an economic analysis of soybean integrated pest management the type of pest management strategy a farmer chooses is influenced by the amount of risk associated with alternative strategies this paper examines the attractiveness of alternative pest management strategies used on a representative virginia soybean farm probability distributions of net revenue associated with alternative pest control options are simulated and then compared using generalized stochastic dominance criteria results suggest risk averse and in some cases risk preferring farmers would prefer strategies which incorporate an integrated pest management approach to pest control rather than one which relies completely on chemical pest control

human capital adjustments in subjective probabilities and the demand for pest controls in addition to risk aversion farmer behavior in an uncertain environment is governed by subjective probability estimates of random events the estimates given here lend support to the idea that human capital development can improve farmers ability to estimate pest damage probabilities more accurate assessment of subjective probabilities leads to lower pesticide use and increases the use of labor intensive pest controls the human capital variables with the largest effects are formal schooling and farmer experience with smaller impacts from field scouting and extension schools

insurance moral hazard and chemical use in agriculture this paper examines how crop insurance affects corn farmers fertilizer and pesticide use in the u s midwest crop insurance might be expected to affect chemical use because of moral hazard insured farmers may undertake riskier production than do uninsured farmers results suggest that insurance exerts considerable influence on corn farmers chemical use decisions those purchasing insurance applied significantly more nitrogen per acre 19 spent more on pesticides 21 and treated more acreage with both herbicides and insecticides 7 and 63 than did those not purchasing insurance these results suggest that both fertilizer and pesticides may be risk increasing inputs

strategic transfers and private provision of public goods abstract this paper considers strategic monetary transfers between two agents when these contribute to a mutual public good if the agents differ in their contribution productivity then the less productive agent has an incentive to make large unconditional transfers to the more productive agent although agents move simultaneously in each stage of the game the less productive agent becomes a stackelberg leader furthermore the generic subgame perfect equilibrium is characterized by full specialization

environmental economics climate change policy and beyond a tribute to anil markandya environmental and natural resource economics is concerned with questions about how environmental and natural resources are and should be developed and managed among the main challenges in this research area is the excessive use of the earth s atmosphere as a sink of greenhouse gas emissions anil markandya is one of the internationally outstanding researchers not only addressing theoretical aspects of environmental problems but also developing appropriate policy approaches this paper depicts the milestones of his contributions to environmental economics and gives some special attention to his more recent works

risk and the value of bt corn a conceptual model is developed to evaluate the effect of bt corn on risk results highlight the importance of distinguishing between marginal and aggregate risk effects and demonstrate that the effect of bt corn on risk depends crucially on the price paid for the technology empirical results show that depending on the price bt corn can be marginally risk increasing or decreasing and can either increase or decrease corn acreage also depending on the price bt corn can provide a risk benefit to farmers even when bt corn is risk increasing bt corn is genetically engineered to produce a protein found in the soil bacterium bacillus thuringiensis bt the protein is toxic to lepidopterous insects such as the european

risk aversion versus expected profit maximization with a progressive income tax this article introduces the terms apparent or pseudo risk aversion to represent those situations where real risk aversion is falsely attributed simply because second and higher moments of random variables are arguments in a decision maker s objective function apparent risk aversion can occur when stochastic variables nonlinearly enter the objective function the progressive income tax structure is highlighted as a neglected but important source of apparent risk aversion such sources of apparent risk aversion should be recognized otherwise an incorrect level of risk aversion might be claimed or risk aversion might be claimed when risk neutrality prevails

heteroscedasticity or production risk a synthetic view two veins of literature namely production risk literature and stochastic frontier analysis are examined both fields are concerned of output variation the former due to exogenous shocks the latter due inefficiency by covering the literature from both the fields this review suggests that the concept of heteroscedasticity can be utilized to build a synthesis between these mainly separate branches of literature however the synthetic approach brings a challenge how to differentiate between different sources of output variation this challenge is identified as the main obstacle to meaningfully combine the two approaches

pure public goods versus commons benefit cost duality sandler and arce 1 pure public goods versus commons benefit cost duality by todd sandler school of international relations university of southern california von kleinsmid center 330 los angeles ca 90089 0043 tsandler usc edu 213 740 9695 213 742 0281 fax and daniel g arce m department of economics rhodes college 2000 n parkway memphis tn 38112 1690 arce rhodes edu 901 843 3121 901 843 3736 fax final revision november 2002 sandler is the robert r and katheryn a dockson professor of international relations economics university of southern california and arce is the robert d mccallum distinguished professor of economics business rhodes college sandler s and arce s research was funded through the dockson and mccallum endowments respectively we have profited from the helpful comments of two anonymous referees

econometric estimation of producers risk attitudes general methods are proposed for the identification and econometric estimation of the parameters of the distribution of risk attitudes in a producer population the proposed methods also provide the basis for the development of statistical tests of model specification and of behavioral hypotheses econometric risk attitude estimation is shown to be possible under less restrictive conditions than previously believed a moment based version of the general model is applied to indian data and the econometrically estimated risk attitudes are presented and compared to experimental results for a similar group of producers

finance and development rethinking the role of financial transparency abstract over the last decade many developing countries strengthened their transparency standards with the objective of improving asset market allocations and macroeconomic outcomes this paper develops a general equilibrium model and argues that in a financially underdeveloped economy with uninsurable consumption risk and stochastic investment enforcing financial transparency might be counterproductive the framework builds upon a standard property that illiquid asset markets cause under investment in assets that pay in the long run because individually rational agents hoard cash to exploit sales of underpriced long term assets first i show that in this environment private revelation of news about investment returns could give a chance to sell low quality assets and then characterize the conditions under which the lack of financial transparency reduces under investment and improves macroeconomic development an empirical analysis reveals that the theoretical predictions of the model is in line with cross country data

mixed oligopoly cost reducing research and development and privatisation abstract we develop a mixed oligopoly model to examine the role of r d subsidies and evaluate the welfare effects of privatisation in solving the oligopoly model we propose a novel use of aggregative games techniques our analysis reveals that privatisation reduces the optimal r d subsidy furthermore privatisation improves social welfare but only when the number of firms is sufficiently large implementing solely a subsidy to r d does not lead to a privatisation neutrality theorem or irrelevance result

successful leadership in global public good provision incorporating behavioural approaches in the standard model of voluntary public good provision and other game theoretic models climate friendly leadership of a country is not successful a unilateral increase of this country s greenhouse gas abatement measures i e contributions to the global public good of climate protection will not lead to a positive reaction by the other countries but instead trigger a reduction of their abatement efforts and thus a crowding out effect in this paper it is shown how this undesired consequence need no longer occur when elements of behavioral economics are incorporated in the otherwise standard model of public good provision in particular strategic complementarities between the public good contribution of the leading country and those of the follower may result either if the follower has specific non egoistic or other regarding preferences or if the leader s contribution positively affects the follower s beliefs i e his conjectural variations about the leader s behaviour

third degree stochastic dominance here f x and g x are less than cumulative probability distributionis where x is a continuous or discrete random variable representing the outcome of a prospect the closed interval a b is the sample space of both prospects the integral shown in rule 2 and those shown throughout the paper are stieltjes integrals recall that the stieltjes integral fb f x dg x exists if one of the functions f and g is continuous and the other has finite variation in a b let d1 d2 and d3 be three sets of utility functions x d1 is the set containing all utility functions with 4 x and 1 x continuous and 41 x 0 for all xe a b d2 is the set with x 1 x 2 x continuous and q j x 0 02 x o for all xc a b d3 is the set with x 1 x 2 x 3 x continuous and 1 x 04 2 x o o for all xc a b here 1 x denotes the ith derivative of x hadar and russell proved that rule 1 is valid for all cd1 and rutle 2 is valid for all ed2 the authors point out that the set of probability distributions that can be ordered by means of second degree stochastic dominance is in general larger than that which can be ordered by means of first degree stochastic dominance note that in rule 2 they assume that x is not only an increasing function of x but also exhibits weak global risk aversion a condition guaranteed by requiring the second derivative of x to be nonpositive in this paper a condition which will be called third degree stochastic dominance is considered it is based on the following assumption about the form of the utility function x from a normative point of view one expects the risk premium associated with an uncertain prospect to become smaller the greater is the individual s wealth the plausibility and implications of this assumption h ave been explored by john pratt as well as others the risk premium of an uncertain prospect is that amount by which the certainty equivalent of the prospect differs from its expected value in mathematical terms given the prospect f x with expected value a the corresponding risk premium t is obtained by solving the following equation rb

a theory of anticipated utility abstract a new theory of cardinal utility with an associated set of axioms is presented it is a generalization of the von neumann morgenstern expected utility theory which permits the analysis of phenomena associated with the distortion of subjective probability

aggregative environmental games this paper expounds a new approach to the analysis of public good and open access resource models developed in a series of recent papers by cornes and hartley and considers the applicability of this approach to modeling current environmental problems i look at a number of possible extensions of the framework survey recent applications to environmental problems and suggest further possible lines of enquiry

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

pests and pesticides risk and risk aversion abstract theoretical and applied literature on risk in decision making for agricultural pest control is reviewed risk can affect pesticide decision making either because of risk aversion or because of its influence on expected profit it is concluded that risk does not necessarily lead to increased pesticide use by individual farmers uncertainty about some variables such as pest density and pest mortality does lead to higher optimal pesticide use under risk aversion however uncertainty about other important variables such as output price and yield leads to lower optimal levels of pesticide use neglect of these variables in most studies has led to the false assumption that pesticides are always risk reducing inputs furthermore there is evidence that in general the pesticide dosage which maximises expected profit is lower under risk than under certainty depending on the balance of forces to increase and decrease pesticide use under risk in many circumstances the net effect of risk on optimal decision making for pest control may be minimal the effect on risk of information about pest density and other variables as in integrated pest management programmes is discussed evidence on this issue is mixed a range of analytical techniques for analysing risk in pest control is reviewed throughout the paper gaps in the existing literature are identified

interior matching equilibria in a public good economy an aggregative game approach abstract if the equilibrium generated by a matching mechanism is to be the desired pareto optimal outcome it is necessary for every player to be at an interior solution at that equilibrium using the aggregative game approach developed by cornes and hartley 2003 2007 this paper analyzes the conditions under which matching mechanisms in a public good economy lead to interior matching equilibria at which all agents make strictly positive flat contributions to the public good in particular we show that the distribution of income among the agents is crucial for both the existence of interior matching equilibria and warr neutrality in the case of matching

potentially harmful international cooperation on global public good provision recent international climate negotiations suggest that complete agreements are unlikely to materialize instead partial cooperation between like minded countries appears a more likely outcome in this paper we analyze the effects of such partial cooperation between like minded countries in doing so we link the literature on partial cooperation with so called matching approaches matching schemes are regarded as providing a promising approach to overcome undersupply of public goods like climate protection the functioning of matching mechanisms in a setting with an incomplete agreement i e a contract where only a subset of the players participates has however not been investigated yet this paper fills this research gap by analyzing incomplete matching agreements in the context of international climate protection we analyse their effect on both welfare and the global climate protection level we show that matching coalitions may bring about a decline in global public good provision and a reduction in the welfare of outsiders

the economics and econometrics of damage control concern for the potentially harmful side effects of agricultural chemical inputs especially pesticides highlights the need to accurately determine the economic levels of their use we consider three model specification issues interaction of direct production inputs with damage control inputs in damage abatement justification for a priori exclusion of production inputs from the abatement function and the motivations and consequences of alternative stochastic specifications empirical analysis using farm level data shows that misspecification of the stochastic element in the production function can overestimate the marginal physical productivity of pesticides and grossly underestimate the responsiveness of demand to increases in pesticide prices

production risk pesticide use and gm crop technology in south africa technology involving genetic modification of crops has the potential to make a contribution to rural poverty reduction in many developing countries thus far pesticide producing bacillus thuringensis bt varieties of cotton have been the main gm crops under cultivation in developing nations several studies have evaluated the farm level performance of bt varieties in comparison to conventional ones by estimating production technology and have mostly found bt technology to be very successful in raising output and or reducing pesticide input however the production risk properties of this technology have not been studied although they are likely to be important to risk averse smallholders this study investigates the output risk aspects of bt technology by estimating two flexible risk production function models allowing technology to independently affect the mean and higher moments of output the first is the popular just pope model and the second is a more general damage control flexible risk mode

two aggregate games demonstration using a production appropriation model we expand the scope of the two aggregate method by applying it to a situation where many heterogeneous players are free to contribute to both aggregates such situations naturally arise in various resource allocation problems hence our method is useful in many applications a production appropriation model is employed to illustrate how the problem of establishing the nash equilibrium can be reduced from solving n 2 best response functions in n unknowns to solving two consistency conditions in two unknowns we then conduct a comparative static exercise that the conventional approach could not handle easily if at all to demonstrate the power of our method this article is protected by copyright all rights reserved

fully aggregative games abstract a game is fully aggregative if payoffs and marginal payoffs depend only on a player s own strategy and a function of the strategy profile which is common to all players we characterize the form which this function must take in such a game and show that the game will be strategically equivalent to another game in which the function is the simple sum of strategies

the voluntary provision of a public good in an international commons in a global commons countries contribute to global welfare by limiting the environmental damage they do assuming this to be so we examine the characteristics of equilibrium without international coordination with particular focus on how control of damaging emissions relates to country size there is some association between size and burden sharing with larger countries doing more to control emissions but there remain important differences between this and a conventional subscription public good dans un domaine global en propriete commune des pays contribuent au bien etre global en limitant le dommage environnemental qu ils causent ceci etant acquis on examine les caracteristiques d un equilibre sans coordination internationale avec une attention particuliere a la question de savoir comment le controle des emissions dommageables est reliea la taille du pays il y a une certaine association entre la taille du pays et le partage du fardeau de la charge pour le domaine en propriete commune les plus grands pays faisant plus pour controler les emissions mais il existe des differences importantes entre cet arrangement et un bien public conventionnel par souscription

two cases for sand in the wheels of international finance the incompatibility of pegged exchange rates international capital mobility and national monetary autonomy is a basic postulate of open economy macroeconomies in the present environment of high capital mobility and political uncertainty even the possibility that governments may utilize their policy autonomy can defeat efforts to peg the exchange rate this leaves two possibilities one is to fix the exchange rate irrevocably through monetary unification the other is to live with floating rates either way a case can be made for throwing sand in the wheels of international finance where monetary unification is not an option this is a may to make distinct national currencies tolerable and international money and capital markets compatible with modest national autonomy in monetary and macroeconomic policy for eu counties striving to create a monetary union it is the only politically and economically feasible way of completing the transition to stage iii of the maastricht process

regulating environmental health risks under uncertainty groundwater contamination in california abstract our method for incorporating uncertainty into environmental health risk policy determination corresponds closely to the legal and political strictures governing these policies an application to a case of grounwater contamination demonstrates that 1 the desirability of developing new water supplies versus cleaning up existing ones varies across locations 2 the stringency of any given policy varies inversely with the margin of sagety required 3 the cost premiums imposed by greater aversion to uncertainty may be quite large and 4 the marginal cost of risk reduction decreases significantly as aversion to uncertainty grows implying that assessments of policies based on average risk will tend to overestimate allowable risk comparing an efficient program to the current inefficient approach to risk management indicates that the cost of inefficiency is not great

international public goods and contribution productivity differentials abstract this paper investigates the impacts of productivity differentials in contributing to the public good on national welfare in the context of non cooperative voluntary provision of a pure public good a country with high productivity does not necessarily enjoy high welfare subsidizing the other country in a contribution game may lead to a strong paradoxical result while a lump sum transfer will lead to a weak paradoxical result we also explore the relationship between the price of the public good and the size of an open club in a multi club model

the importance of seasonal variability and tactical responses to risk on estimating the economic benefits of integrated weed management seasonal variability is an important source of risk faced by farmers and regardless of an individual s attitude to risk there are options to tactically adjust production strategies as the outcomes of risk become known the objective of this article is to measure the economic benefits of alternative approaches to managing weeds one of the most serious production problems in australian cropping systems a bioeconomic model that combines weed biology crop growth and economics is developed to value the effects of seasonal variability and the role of tactical responses and sequential decision making in determining an optimal integrated weed management strategy this shows that there are substantial differences in the measured long term benefits from deterministic and stochastic simulations it is concluded that for research evaluation of technologies that involve complex biological and dynamic systems ignoring the impacts of seasonal variability responses to risk and sequential decision making can lead to an incorrect estimate of the economic benefits of a technology in this case study of optimal weed management strategies in australia the size of the error is high

financial markets in development and the development of financial markets what is the relationship between markets and development it is argued that markets promote growth and that growth in turn encourages the formation of markets two models with endogenous market formation are presented to analyze this issue the first examines the role that financial markets banks and stock markets play in allocating funds to the highest valued use in the economic system it is shown that intermediation will arise under weak conditions the second focuses on the role that markets play in supporting specialization in economic activity the consequences of perfect competition in market formation are highlighted