MODIFYING THE NEO-CLASSICAL APPROACH TO TECHNOLOGY ADOPTION WITH BEHAVIORAL SCIENCE MODELS

The dualistic nature of humans has been recognized for centuries. The intriguing question is the extent to which the human being with her/his display of concern for others can simultaneously act as an egoist, the latter being descriptive of the homo oeconomicus rendition of the human. Multiple utility theory suggests a way to approach research on such issues. A test case of water conserving technology adaptation behavior by Florida growers is examined. Empirical evidence supports moving toward an expanded version of the mono-utility or I-utility model to include a We-utility.Behavioral economics, Conservation technology, Meta-preferences, Multiple utility, Socioeconomics, Technology adoption, Research and Development/Tech Change/Emerging Technologies,

ISSUES AND PROBLEMS IN AGRICULTURAL WATER DEMAND ESTIMATION FROM SECONDARY DATA SOURCES

Resource /Energy Economics and Policy,

MACHINERY REPLACEMENT, MULTIPLE OPTIMA, AND THE 1986 TAX REFORM ACT

The 1986 Tax Reform Act established a first year $10,000 expensing option and, for most farm equipment, a 7-year depreciation schedule. Under a profit maximization criterion, these tax law features can lead to multiple optima dependent upon discount and marginal tax rates. For example, the economically efficient time to reinvest under a 2 percent after tax discount rate is at 4, 8, and 30 years for the grower in a 33 percent tax bracket. Thus, the profit maximization behavioral rule needs to be supplemented with knowledge about a farmer's objectives in order to select the "correct" optimal reinvestment interval.Political Economy,

WATER PRICE RESPONSIVENESS AND ADMINISTRATIVE REGULATION - THE FLORIDA EXAMPLE

Demand and Price Analysis, Resource /Energy Economics and Policy,

MELDING PRIVATE AND PUBLIC INTERESTS IN WATER RIGHTS MARKETS

The debate over privatizing and water markets has moved back and forth for decades between the "I" and the "We" perspectives. Rather than either/or, a balanced "I&We" view of water institutions is needed. West is meeting east in water law. Public interest needs must be satisfied in appropriate decision forums, but marketing may prove a social improvement when used as a supplement. Balancing an "I&We" institution involves establishing an acceptable or tolerable level of interference through judicious mixing of state, common and private property regimes. Third-party effects are eliminated as mutual gain arises in a variety of decision forums.Property, Interference, Water institutions, Water marketing, Interdependence, Resource /Energy Economics and Policy,

Empathy Conditioned Conservation: "Walking-in-the-Shoes-of-Others" as a Conservation Farmer

Since the destruction and despair caused by the dust bowl of the 1930’s, Americans and their government have taken a keen interest in natural resource conservation policy on agricultural land. The Soil Conservation and Domestic Allotment Act of 1936 was the first farm bill to include provisions that provided payments to farmers willing to employ soil conservation measures (Cain and Lovejoy, 2004). While the main purpose of this bill was to provide financial support to impoverished farmers, the fact remains that natural resource conservation was starting to become an important issue for the American public. Over time, conservation titles in the farm bill have evolved into legislation that protects several resources, including surface water. Expenditures have also significantly increased. While giving monetary payments to individual producers engaging in conservation activities is ultimately a policy decision, the underlying assumption for these payments is one outlined in traditional microeconomic theory, which presumes producers are engaging in activities that will maximize profits. Since conservation activities are not inherently profitable to the individual farmer, payments are provided under the presumption that the only way to increase conservation efforts is to increase profits. The environmental results from these payment schemes have been mixed. With this in mind, the USDA has begun funding research that examines the underlying factors that motivate producers to engage in conservation activities. As part of this new research, a collaboration of researchers from a group of Midwestern universities and government agencies recently engaged in a study of conservation behavior exhibited by producers located in the Blue River/Tuttle Creek Lake watershed of Nebraska and Kansas. Examination of this particular watershed was conducted because it currently provides drinking water to areas of northeast Kansas that are exhibiting rapid population expansion, such as Manhattan, Lawrence, and Kansas City. The Blue River/Tuttle Creek Lake watershed covers a large portion of southcentral and southeast Nebraska, as well as northeast Kansas. However, the use of natural resource assessment maps and empirical surface water quality data served to identify a critical four county area of nonpoint source runoff near the Nebraska-Kansas border that may have the largest impact on Tuttle Creek Lake. Particular attention was paid to the adoption of no-till/conservation tillage strategies in this area due to the sedimentation problem in the Lake. Data was obtained through the use of both focus groups and a mail survey. Overall, the survey response rate was 17.1 percent (639 survey responses; 498 surveys were used in the statistical analysis). Variables used to assess what motivates farmers to engage in conservation tillage technologies included income capacity; psychological tendencies for jointly pursuing self-interest and an empathy conditioned, shared other-interest; habitual tendencies; and preferences for control over farming operations. Results confirmed some old notions and added several new insights into what actually motivates being a conservation farmer. As economic (and policy) tradition suggests, we confirmed that income (i.e. financial capacity) was a significant variable. However, the models showed that a one thousand dollar increase in income only increased the odds of conservation tillage adoption by 0.4 to 0.6 percent (i.e. less than 1 percent). The first new insight suggests that farmers who recognize the water quality problem in the watershed and subsequently empathize with downstream water users (i.e. “walk-in-their-shoes”) are much more likely to engage in conservation tillage strategies. In fact, we show that farmers with even a small interest in identifying with downstream water users are anywhere from four to nine percent more likely to use conservation tillage technologies. Related to this empathy phenomenon, we also show that people other than the individual farmer can influence the decision to use conservation tillage. We found that the odds of conservation tillage adoption increase by nine percent for those farmers that think farm entities (i.e. lenders, chemical and seed suppliers, equipment dealers, etc) believe that they should use conservation tillage technologies. Intriguingly, though, we also found that the opinions of family members and downstream water users do not have a significant impact on the tillage decision. Another new insight points to how preferences for control impact the decision. Our results indicated that a farmer who believes the use of conservation tillage results in a loss of control over farming operations is less likely to use the technology. In fact, the odds of conservation tillage adoption decrease by about nine percent for those that perceive just a small loss of control over farm operations when using conservation tillage technologies. Finally, we find that a farmer’s habitual tendencies play a large role on the tillage adoption decision in the study area, with the odds of conservation tillage adoption increasing by nearly forty percent if a farmer has used conservation tillage in the past. While some would argue that “we always knew that current choice is affected by past (habit) choice,” the underpinnings are in fact quite new. Only in recent years have behavioral and neuroeconomics researchers documented that we run on automatic most of the time. So, it takes greater financial incentives to move a farmer to a conservation path (i.e. change habits) than it does to keep someone on that path. So what is the bottomline? We conclude that a single over-arching conservation policy based in traditional economics will not work. Rather, a behavioral economics framework gives a a more reasonable and rational basis for said policy. In particular, in addition to financial incentives, policy needs to recognize habits and control, and especially the role of empathy, i.e. “walking-in-the-shoes” of others: Emotions (reflected in empathy) play a much larger role in truly rational choice than traditional economic thinking acknowledges. Solving environmental quality problems depends on better understanding the human dimension of conservation decisions. Cain, Z., and S. Lovejoy. “History and Outlook for Farm Bill Conservation Programs.” Choices (2004): 37-42.Behavioral economics, Empathy. Dual motives, Dual Interests, Shared Other-interest, Self-interest, Institutional and Behavioral Economics, Resource /Energy Economics and Policy,

Climate Change and Farm Use of Weather Information

More rapid than normal global climate change as represented by rising temperatures and more erratic and severe weather events have heightened the interest in how farmers use weather information. The greenhouse influence through driving climate change will likely be affecting agricultural efforts for some years to come. It behooves us to pay attention to this phenomenon, and especially put effort into understanding how farmers will respond to information about climate generally and forecasts in particular. This research is being funded by the U.S. Department of Commerce, National Oceanic and Atmospheric Administration. To address this issue farmers were surveyed in three major agroecological zones representing 1) a western Corn Belt, rainfed corn-soybean regime, 2) a central Great Plains irrigated corn-soybean regime, and 3) a central Great Plains irrigated continuous corn regime. Each of these zones is represented in three counties in eastern Nebraska. To better reflect farmers' weather related needs and issues, focus groups were held in each county to engage farmers in helping the researchers to design the survey instrument. The fact we used focus groups added an intriguing flavor to the study. Between 15-20 farmers in each zone were involved. These farmers were paid $25 for a 2-hour session that culminated in a provided lunch. Each session was also videotaped, providing the opportunity for all members of the research team to see the results of the event (in that only 3-4 members of the larger multidisciplinary research team were allowed to attend an event, due to concerns over affecting farmer responses). The focus was on the farmers' reactions to a series of questions prepared beforehand by the research team, all of which stirred lively dialogue on how farmers actually use weather information. The result was a substantially improved questionnaire. We also sent drafts back to farmer participants for final reviews, and subsequent adjustments were then made reflecting the way they used the words and understood the survey questions. The qualitative data from the focus group events ultimately influenced not only the way questions were asked but also how the modeling is done, and, especially, how the model results are interpreted. A total of 2211 questionnaires were sent, in two separate mailings. There was also a follow-up reminder card. Farmers were offered a payment of$25 to return the questionnaire. A total of 28% took the offer and the overall return rate was 33%, with 698 usable questionnaires in the econometric analysis. A distinctive aspect of this study is the fact that the research team involves active participation not only by agricultural economists but also by a psychologist and a social psychologist, as well as two meteorologists, and an agronomist (who is also a GIS specialist). The result is a nontraditional behavioral economics approach that is sensitive to the climate and agronomic realities faced by farmers in these zones. This approach has a unique two-fold feature; first, it puts special attention on underlying motives, and second, asks whether there may be a complex expression of both private (self) and public (other, community) interest in how forecasts influence farm level decisions. Yet, the modeling still reflects standard derived demand theory and the general expectancy-value or subjective utility perspective, i.e. that farmers have beliefs about fact events and values relating to the outcomes from those events, and that the demand for weather information is derived from the value (profit, sense of well-being, risk-reducing value) it produces for them. The beliefs represent probability statements about outcomes and the values represent the utility or profit related transformations of meaning about the farmer perceptions of the outcomes. The econometric analysis uses proxy measures of the expectancy-value as independent measures, along with such variables as financial capability of the farmer as represented in farm sales, to explain in a Tobit kind of framework 1) the probability of applying weather forecast information since it influences farm level decision(s), and 2) the extent to which this forecast information is influencing these decision(s). The set of four Tobit models in Table 1 test the influence of recent past and current experience (RPE), short (STF) and long-term forecasts (LTF) on 1) agronomic (e.g. selecting the crop type, spraying), 2) insurance, and 3) marketing decisions, within recent past experience/short-term and long-term forecasts. To test the models, we created four indices represented in balance (joint and nonseparable ratio of public (other) to private (self) interests); attitude as a construct of personal belief and value system, influence of social norms, household and community members, county extension, etc; farmers' need for internal control over crop production; and farm sales representing financial limitations. Preliminary analyses suggest that all the farm decisions are influenced by weather forecast information at a different intensity (Table 1). The probability of that influence increases with balance, as the farmer puts more effort into pursuing the self over the community interests. Influence of others and social norms intensify the use of weather information in the decisions as well. Those who want more control over the farm are likely to be more influenced by weather forecasts. Finally, influence of weather forecasts becomes greater as gross farm income (sales) increases. Other intriguing interpretations are suggested by the changes in the size of the parameter elasticities and marginal effects3, e.g. the control parameter is substantively smaller in the insurance decision, which suggests farmers see insurance as offsetting the need for more control over their decisions. As another example, the balance in private and public interests is less significant and less a factor in the very personal, private marketing decision in contrast to "how one farms" (which is likely more sensitive to community scrutiny) in the agronomic decisions. The larger paper explores these refinements in greater detail. Table 1. Intensity of Weather Forecast Influence on Farm Decisions. Variables Agronomy (Cur. Rec. Past Exp. & Short term forecasts) decisions Agronomy (Long Term Forecasts) decisions E1 E 2 ME 1 ME 2 E 1 E 2 ME 1 ME 2 Balance -.37b -.37b -1.109b -.012b -.23a -.24a -.637a -.0202a Attitude .62c .62c .495c .0052c .71c .72c .560c .0178c Norms .12c .12c .153c .0016c .09b .09b .102b .0032b PBC .15c .15c .157c .0017c .19c .19c .178c .0056c Farm Sale .07b .07b .086b .0009b .02 .02 .024 .0008 Easting .06b .06b -2.2E-6b -2.3E-8b -.01 -.01 3.7E-7 1.2E-8 Insurance decisions Marketing decisions Balance -.12 -.13 -.247 -.033 -.29a -.29a -.779a -.040a Attitude .93c .98c .674c .089c .58c .59c .486c .025c PBC .07 .07 .048 .006 .13b .13b .119b .006b Farm Sale .18c .19c .164c .022c .20c .20c .238c .012c Notes: Dependent variable is the degree of influence of climate and weather information and forecasts. a p<0.10, b p<0.05, c p<0.001. 3 E1 is the elasticity at the mean that represents the percentage change in the probability that the weather and climate forecast and information influences decisions at all, and; E2 is the elasticity at the mean for those who are being influenced, the percentage change in the degree of influence. ME1 is the effect of the expected value for the weather and climate already influenced farmers; ME2 is the effect of the probability of being influenced by climate and weather information (elasticity of influence).Farm Management,

WATER ALLOCATION UNDER ADMINISTRATIVE REGULATION: SOME ECONOMIC CONSIDERATIONS

Resource /Energy Economics and Policy,

The Myth of the Rational Market: Nudging Each Other Away from Fool’s Gold

A flurry of media commentary and several new books are focused on the recent financial crisis and near economic collapse. A Newsweek article by Zakaria (2009), “Greed is Good (To a Point),” suggests reconsidering the role of greed in capitalism. This is also the theme in Fools Gold (Tett, 2009), a story about the way derivatives markets have evolved: showing greed at its worst. In many ways this is the core source of the current set of problems. In some sense, these perspectives are integrated in The Myth of the Rational Market by Fox (2009), who traces the thinking on the efficient market hypothesis, now understood for what it is: a myth. Both books are based in large part on interviews with major players in the crisis. There are also books drawing mainly on science, but still quite accessible to general readers, as represented in Nudge by Thaler and Sunstein (2008). Both have done extensive research on human foibles in economic choice. There is also Animal Spirits (Akerlof and Schiller, 2009), a book about what Keynesian economics is really about, a look at human forces at work. Akerlof is a Nobel prize winner in economics, who before this has pointed to the problems with presuming rationality in real markets. Schiller is one of the few economists who predicted these events

Introduction to \u3ci\u3eMetaeconomics\u3c/i\u3e

Metaeconomics is fundamentally about the problem of having too much emphasis on the Market or too much emphasis on the Government. It is about the essential need to bring empirical reality and ethics into finding balance: It is essential to achieving a good capitalism. Why? Well, because of the natural tendency to excessive Greed. As DeWaal (2009) would have it, we live in an age of Empathy: Ego based Greed is out. The Greed needs to be tempered, balanced, and perhaps bounded, with Empathy-based ethics. And, as Metaeconomics makes clear, it is because there is a dual nature of human nature, but it is an old story, from Smith (1759/1790): How selfish so ever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. Of this kind is pity or compassion, the emotion which we feel for the misery of others [Smith 1759/1790, The Theory of Moral Sentiments, quoted in Solomon 2007, p. 64, who adds: Without compassion (sympathy), there would be no foundation and no motivation for ethics]. As it suggests, expressing the moral sentiments is all about Empathy as the starting point, perhaps leading to Sympathy with (not for, but with), and then possibly to compassion (or not). Solomon (2007) agrees: There is something (empathy-sympathy- compassion based ethics, the moral and ethical dimension) beyond mere Self-interest at work. Yet, Self-interest is still the key feature of a viable and good capitalism, as Smith (1776/1789) made clear. And, reality, please. As the story about Metaeconomics unwinds, the case will be made that the something essential to tempering mere Self-interest is an Empathy (and ethics)-based Other-interest. And, that a viable and good capitalism requires balance in Ego&Empathy, selfish&selfless, person&people, person&community, Self&Other (the latter shared with others, but internalized within Own-self)-interest. Remember: Metaeconomics is about the person. At a larger scale, the balance needs to be in Market&Government. An integrated Smith (1776/1789) & Smith (1759/1790) represents it. As Smith tried to teach us, it is about seeking a way for each person to maximize their Own-interest in their own (humane and liberal) way, which includes both Self&Other-interest. It cannot be emphasized enough. The goal, the possibility for happiness (and peace), depends on Own-interest, not Self-interest only. Said Own-interest involves humanely including others, represented in the underlying ethic that gives content to the shared Other-interest. For the early analysis and claim that interdependency, jointness, and nonseparability of a dual interest is represented in Smith (1776/1789) & Smith (1759/1789), see Lynne (2006). For the latest claims about Adam Smith and dual interest, especially on how the moral sentiments relate to Empathy and Sympathy, leading to the moral and ethical dimension of the economy, see Lynne et al. (2016, esp. pp. 245–250). Dual interest reasoning can be used to provide new insights into solving old economic puzzles, resolving paradoxes and anomalies. It can be used to suggest and guide new empirical testing on a way to a more reality-based economics. So, hang on, here we go, on a potentially fun and productive ride toward an ethics-based, and, yes, a reality-based, economics