INCOME DISTRIBUTIONAL IMPLICATIONS OF WATER POLICY DECISIONS

Intrasectoral issues have received relatively little attention in analysis of the distributional consequences of natural resource policy decisions. This paper presents a framework for such analysis and examines how intrasectoral issues can change intertemporally, focusing on water policy in agriculture. The results show that income distribution among farmers depends on the stochastic structure of production and marketing, the size distribution of farms, credit market imperfections, and risk aversion in farmer decisions. It is shown that the introduction of water conservation policies may lead to more equitable income distribution among farmers.Resource /Energy Economics and Policy,

Smarter Lunchrooms: Using Behavioral Economics to Improve Meal Selection

Food Consumption/Nutrition/Food Safety,

IN DEFENSE OF FENCE TO FENCE: CAN THE BACKWARD BENDING SUPPLY CURVE EXIST?

Politicians dealing with the “"farm problem”" sometimes lament that output increases when prices go up and when prices go down. This article presents three possible theoretical explanations. In the first, farmers deplete soil (over-farm) when prices are low and imperfect capital markets prevent borrowing. In the second, farmers in financial stress (low prices) allocate more family labor to farming to meet debt-repayment constraints. In the third, wealth held in farmland tends to decline as prices decline. With decreasing absolute risk aversion, this increases risk aversion which, in extreme cases, causes negative supply response.Farm Management,

Loss Aversion and Reference Points in Contracts

Loss aversion has become the dominant alternative to expected utility theory for modeling choice under uncertainty. The setting of the base payment in contracts provides an interesting application of referenced based decision theory. The impact of loss aversion on contract structure depends critically on whether reservation opportunities (outside options) are evaluated with respect to the reference point implied in the contract. We show that when reservation opportunities are independent of the reference point, reward contracts are optimal. However, when reservation opportunities are evaluated against the reference point, then penalty contracts are more efficient.Risk and Uncertainty, L14, D81, D21, D82,

Production Incentives from Static Decoupling: Entry, Exit and Use Exclusion Restrictions

The use of agricultural decoupled support has increased as World Trade Organization (WTO) member nations implement less trade distortive policies. However, the true production effects of these policies are still unclear. We show how the exclusion restrictions of U.S. direct payments, namely, the fruit and vegetable restriction and the requirement of keeping land in good agricultural use, cause the decoupled payment to become fully coupled over time as relative profits adjust. Theoretically, decoupled payments can be more trade distorting than an equivalent (same level of taxpayer expenditure) fully coupled subsidy.decoupled payments, infra-marginal support, cross-subsidization, Agricultural and Food Policy, International Relations/Trade, Land Economics/Use, Q15, Q17, Q18,

Pests and Agricultural Production under Climate Change

Although the effect of climate change on agricultural pests has been studied by biologists, thus far, large-scale assessments of climate change and agriculture have not included the impact of pests. We develop a simple theoretical model of farmer-pest interaction under climate change and explore the potential impacts on land values.Environmental Economics and Policy,

Health Information Availability and the Consumption of Eggs: Are Consumers Bayesians?

We use a generalized Bayesian updating model to estimate the impact of health information appearing in the popular media on the consumption of eggs. Our model allows media publications with differing circulation numbers to have differing effects. Further, we explore the possible effects of several known psychological biases in learning.Marketing,

Average vs. Marginal Risk Aversion: Reconciling Simultaneously Risk Averse and Risk Loving Behavior

Risk and Uncertainty,

Why farmers sometimes love risks: evidence from India

Using a unique data set collected among farmers in India’s semiarid tropics, we document the surprising prevalence of risk-taking behavior in the face of realistically framed high-stakes gambles. We hypothesize that this apparently anomalous behavior is due to a combination of credit constraints and nonconvexities in production. In particular, the high-stakes nature of the gambles creates the potential for a farmer to undertake a productive investment that would normally be unaffordable and thereby move to a permanently higher level of income. We show that the degree to which farmers are willing to accept risk in return for this opportunity appears to relate in an intuitive way to their current agricultural production technology as well as the demographic composition of their household

The Welfare Economics of an Excise-Tax Exemption for Biofuels

A general theory is developed to analyze the efficiency and income distribution effects of a biofuel consumer tax credit and the interaction effects with a price contingent farm subsidy. Using the U.S. ethanol market as a stylized example, ethanol prices rise above the gasoline price by the amount of the tax credit. Corn farmers therefore gain directly while gasoline consumers only gain from any reduction in world oil prices due to the extra ethanol production and domestic oil producers lose. Because increased ethanol production improves the terms of trade in both the export of corn and the import of oil, we determine the optimal tax credit and the conditions affecting it. Historically, the intercept of the ethanol supply curve is above the gasoline price. Hence, part of the tax credit is redundant and represents ‘rectangular’ deadweight costs. The tax credit reduces the tax costs of price supports but incurs tax costs itself and increases consumer costs of corn. Price supports eliminate, create, have no effect or have an ambiguous effect on rectangular deadweight costs, depending on whether there is ex ante or ex post water in the tax credit. There are situations where ethanol production occurs only because of price supports. A stylized empirical model of the U.S. corn market is calibrated to illustrate the welfare effects of a tax credit. Net social costs of the tax credit averaged $683 million. Rectangular deadweight costs averaged$1,056 mil., more than offsetting the improved terms of trade and reduced price contingent farm subsidies, and representing over 50 percent of the tax cost of the tax credit.biofuels; tax exemption; rectangular deadweight costs; price subsidies; welfare economics