OPTIMAL RISK MANAGEMENT, RISK AVERSION, AND PRODUCTION FUNCTION PROPERTIES

For production risk with identified physical causes, the nature of risk, production characteristics, risk preference, and prices determine optimal input use. Here, a two-way classification for pairs of inputs – each input as being risk increasing or decreasing and pairs as being risk substitutes or complements – provides sufficient conditions to determine how risk aversion should affect input use. Unlike the Sandmo price risk averse firm may produce more expected output and use more inputs than a risk neutral firm. Sufficient conditions to determine types for pairs of inputs are also related to properties of the production function.Production Economics, Risk and Uncertainty,

Alternative Measures of Benefit for Nonmarket Goods Which are Substitutes or Complements for Market Goods

Nonmarket goods include quality aspects of market goods and public goods which may be substitutes or complements for private goods. Traditional methods of measuring benefits of exogenous changes in nonmarket goods are based on Marshallian demand: change in spending on market goods or change in consumer surplus. More recently, willingness to pay and accept have been used as welfare measures . This paper defines the relationships among alternative measures of welfare for perfect substitutes, imperfect substitutes, and complements. Examples are given to demonstrate how to obtain exact measures from systems of market good demand equations .Agribusiness, Marketing,

THE VALUE OF PUBLIC INFORMATION FOR MICROECONOMIC PRODUCTION DECISIONS

Procedures are needed to evaluate the benefits of the provision of information. This paper shows how to apply a money metric definition of the value of information for this purpose. The application is to microeconomic input choices for agricultural production, and the information to be valued concerns the effect of fertilization on sorghum yield. In this paper application both output price and output level are stochastic, and the probability distribution of output is affected by the chosen level of fertilizer.Crop Production/Industries,

Alternative Measures of Benefit for Nonmarket Goods Which are Substitutes or Complements for Market Goods

Nonmarket goods include quality aspects of market goods and public goods which may be substitutes or complements for private goods. Traditional methods of measuring benefits of exogenous changes in nonmarket goods are based on Marshallian demand: change in spending on market goods or change in consumer surplus. More recently, willingness to pay and accept have been used as welfare measures . This paper defines the relationships among alternative measures of welfare for perfect substitutes, imperfect substitutes, and complements. Examples are given to demonstrate how to obtain exact measures from systems of market good demand equations

Cost Recovery, Efficiency, and Economic Organization for Water Utilities

This paper describes a new method of utility pricing – Variable Unit Pricing (VUP) – that results in both economic efficiency and cost recovery for a variety of supply situations faced by water utilities. The main advantage of VUP – compared to Increasing Block Rates – is that its parameters can be objectively determined from demand and cost information.

OPTIMAL RISK MANAGEMENT, RISK AVERSION, AND PRODUCTION FUNCTION PROPERTIES

For production risk with identified physical causes, the nature of risk, production characteristics, risk preference, and prices determine optimal input use. Here, a two-way classification for pairs of inputs - each input as being risk increasing or decreasing and pairs as being risk substitutes or complements - provides sufficient conditions to determine how risk aversion should affect input use. Unlike the Sandmo price risk averse firm may produce more expected output and use more inputs than a risk neutral firm. Sufficient conditions to determine types for pairs of inputs are also related to properties of the production function

Cost Share Adjustment Processes for Cooperative Group Decisions about Shared Goods: A Design Approach

For group decision about shared goods, the nature of the shared good and how its cost is to be shared among group members must be determined. Complexity arises from heterogeneity in preferences and endowments and nonlinear cost. To facilitate group decision, this paper proposes special type of group decision support system, a cost share adjustment process (CSAP), in which cost shares are adjusted iteratively via algorithmic rules until unanimity is reached, ideally producing a socially optimal, cost feasible, and fair outcome. In contrast to public good literature, our designs apply for situations of nonlinear cost, with economies of scale and fixed costs. In response to impossibility theorems, a design approach is developed: design elements for CSAPs include message space, cost allocation and adjustment rules, controllers, and incentive rules, with many possibilities for specifying a process. Simulation and economic experiment are employed to compare alternative designs, in particular highlighting the incentive effects of message space. As simulation and experiment both indicate, complicated cost allocation rules for incentive purposes may impede locating group agreement. Instead, economic experiments show that unanimity Approval Voting can mitigate the effects of strategic behavior

Willingness to Pay for Gains and Losses in Visibility and Health

Two different willingness-to-pay responses are compared-willingness to pay to avoid loss of air quality and willingness to pay to obtain gains in air quality. Contingent valuation data were used to estimate bid functions for these two types of responses for visibility and health. Comparison of the estimated models indicates that, in addition to magnitude differences, gains and losses for visibility and health are affected differently by health status, risk perceptions, and other risk-related variables. Results for the loss measure are more reliable in terms of variability of response and econometric modeling.