Optimal Contracting for Cattle Feeding: An Assessment of Climatic Conditions

A unique approach using a biophysical growth model from the animal science literature is used to examine optimal contract cattle feeding behavior under alternative climatic conditions. The examination of incentives and outcomes in an unusually comprehensive contract parameter and behavioral space is made possible by combining simulated feedlot and carcass performance of a large set of cattle with public price and weather data. The model uniquely fits typical risk aversion levels and rationalizes existing contract types. The results show that optimal cattle feeding contract varies with climatic condition, but there is a tendency to replace cost-of-gain contracts with yardage-feed contracts as grid pricing has emerged.Cattle, Feeding, Contracts, Climate, Industrial Organization, D80,

OPTIMAL CONTRACTS FOR EXPLORATION WITH COST RECOVERY OF AN EXHAUSTIBLE NATURAL RESOURCE UNDER ASYMMETRIC INFORMATION

Exploration of an exhaustible resource with cost recovery under asymmetric information about cost is modeled and analyzed employing Principal-Agent theory. Allocation of lower than full information level of effort for the high-cost firms is found socially optimal. However, distortion is less in a two-stage process of exploration and extraction.Resource /Energy Economics and Policy,

Optimal Incentive Structure in Cattle Feeding Contracts under Alternative Fed Cattle Pricing Methods

Developing a multitask principal-agent model, this paper theoretically analyzes the incentive provisions in the existing cattle feeding contracts under alternative fed cattle pricing methods. Comparative statics from the theoretical model are evaluated by simulation experiments. Feedlot and carcass performance of a large set of feeder steers are simulated employing a dynamic and deterministic bio-physical growth model adapted from the animal science literature. The cattle feeder and the owner's stochastic costs and returns under alternative production technologies and market conditions are then calculated by combining cattle performance data with historical price data. The main finding of this study is that the yardage fee contract is optimal for the cattle owner when the fed cattle are to be priced on the grid and the cost of gain contract is optimal when the cattle are to be marketed according to the live or dressed weight pricing methods.Livestock Production/Industries,

Optimal Incentive Structure in Cattle Feeding Contracts Under Alternative Fed Cattle Pricing Methods

Developing a multitask principal-agent model, this paper theoretically analyzes the incentive provisions in the existing cattle feeding contracts under alternative fed cattle pricing methods. Comparative statics from the theoretical model are evaluated by simulation experiments. Feedlot and carcass performance of a large set of feeder steers are simulated employing a dynamic and deterministic bio-physical growth model adapted from the animal science literature. The cattle feeder and the owner's stochastic costs and returns under alternative production technologies and market conditions are then calculated by combining cattle performance data with historical price data. The main finding of this study is that the yardage fee contract is optimal for the cattle owner when the fed cattle are to be priced on the grid and the cost of gain contract is optimal when the cattle are to be marketed according to the live or dressed weight pricing methods.Livestock Production/Industries,

SUBDIVISION SPECIFIC AMENITIES AND RESIDENTIAL PROPERTY VALUES

A hedonic property value model, derived from a dynamic game theoretic framework, is estimated using data obtained for 211 subdivisions including 4628 building lots in five Maryland counties. Linear Box-Cox estimation results show that variables measuring subdivision specific amenities significantly affect residential property values, and omission of such variables produces biased coefficient estimates.Land Economics/Use,

Subdivision Specific Amenities and Residential Property Values

A hedonic property value model, derived from a dynamic game theoretic framework, is estimated using data obtained for 211 subdivisions including 4628 building lots in five Maryland counties. Linear Box-Cox estimation results show that variables measuring subdivision specific amenities significantly affect residential property values, and omission of such variables produces biased coefficient estimates.Land Economics/Use, Public Economics,

Optimal Contracting and Vertical Coordination in the Beef Industry: An Assessment of Value-Based Pricing

This dissertation explores the nature and scope of vertical coordination in the U.S. beef industry. From the perspective of the incomplete contract theory of the industrial organization literature, this dissertation first provides a theoretical economic explanation for the traditional and emerging governance structure of the U.S. beef industry, and then explains why a complete vertical integration has not yet occurred in the beef sector. Analyzing the organizational details of this industry, the author argues that the degree of idiosyncrasy of transaction-specific investments by each of the vertically-related beef sectors is not high enough that transaction costs could be further reduced by vertical integration. The dissertation further examines optimal behavior of commercial cattle feeders under alternative cattle feeding contract provisions, and the implications for contract choice by cattle owners and feeders under traditional and value-based pricing methods for fed cattle. The author analyzes optimal incentive structures for cattle feeding contracts under alternative fed cattle pricing methods and risk preferences of cattle owners and feeders using a multitask principal-agent model. In order to evaluate the predictions of the model, a dynamic biophysical growth model for beef cattle from the animal science literature is employed to simulate feedlot and carcass performance outcomes of a large sample of feeder steers for various feeding strategies typically used by cattle feeders. The main results of this research are as follows. First, carcass yield- and quality-improving inputs are substitutes in the production technology of feedlots. Second, overall beef quality improves under grid pricing with optimal owner and feeder behavior. Third, the power of the optimal incentive scheme for cattle feeding is lower under value-based grid pricing than under traditional live- and dressed-weight pricing methods. Fourth, the power of the incentive scheme increases with the degree of cattle owners' risk aversion. Fifth, compared to traditional pricing methods, value-based grid pricing better aligns the incentives of cattle owners and feeders under feeding contract structures in current use (yardage-fee-plus-feed-cost contracts or cost-of-gain contracts). Sixth, asymmetry in the premium-discount structure in current grids and the additional risk associated with carcass yield and quality under grid pricing are the main reasons for continued use of live-weight pricing and apparent slowness to adopt grid pricing. Seventh, more balanced premiums and discounts in grid pricing may be required to achieve further expansion of grid pricing and overall improvement of beef quality and consistency. Eighth, if cattle feeders can limit the contract parameter space to traditional forms of contracts and owners choose the contract parameters, then typical forms of cattle feeding contracts can be rationalized by optimal behavior under plausible levels of risk aversion. Finally, the introduction of grid pricing decreases (increases) the tendency toward cost-of-gain (yardage-fee-plus-feed-cost) contracts in commercial cattle feeding

Market opportunities for African agriculture: A General Equilibrium examination of demand-side constraints on agricultural growth in East and Southern Africa

"This report focuses on demand-side constraints on agricultural growth and their implications for three broad alternative agricultural development strategies: promoting traditional exports, developing nontraditional exports, and increasing food staple growth. We address three major questions. First, how constraining will demand be for future agricultural growth in East and Southern Africa and, in particular, is there sufficient demand to permit agriculture to grow at a rate that can significantly reduce poverty and hunger? Second, if technological change and increase in supply are achieved, which agricultural subsectors offer the greatest potential and can become the most powerful vehicles for raising real incomes and increasing food consumption? Finally, what are the implications of reductions in marketing costs and growth linkages with nonagricultural sectors for achieving increased market demand for agricultural products? The report applies a general equilibrium framework for the analysis, focusing on seven East and Southern African countries—Madagascar, Malawi, Mozambique, Tanzania, Uganda, Zambia, and Zimbabwe—and finds that an export-led agricultural growth strategy is unlikely to generate substantial overall income growth in these countries." from Authors' SummaryAgricultural growth, exports, Poverty reduction, General equilibrium model, food consumption, Markets, income growth,

Market opportunities for African agriculture

"Rapid growth in the agricultural sector is central to any strategy for slashing poverty and hunger on the African continent. Yet investments aimed at increasing agricultural productivity need to be linked to market opportunities if they are not to depress commodity prices and farm incomes. It is widely perceived that high market transaction costs, weak domestic consumer demand, and lack of export possibilities are major constraints on agricultural growth prospects for Africa. But just how severe are these constraints, and what can be done to enhance market opportunities to enable agriculture to become a more powerful engine of growth for the continent? This study addresses these questions. It concludes that non-traditional exports have the fewest constraints and remain the most profitable option for increasing export earnings.....Thus, investments in agriculture and other efforts to promote higher agricultural productivity growth need to be complemented with policies and investments to spur non-agricultural growth. More generally, investments in rural infrastructure can help to maximize positive linkage effects of agricultural growth. Agricultural growth can play a major role in increasing food supply, but sustained increases in incomes and reductions in poverty are likely to require a combination of labor-intensive growth in both agricultural and nonagricultural activities." from Authors' Abstract

A BAYESIAN APPROACH TO OPTIMAL CROSS-HEDGING OF COTTONSEED PRODUCTS USING SOYBEAN COMPLEX FUTURES

Cottonseed crushers face substantial risk in terms of input and output price variability and they are limited in their planning by the lack of viable futures markets for cottonseed or cottonseed products. This study examines the feasibility of cross-hedging cottonseed products using soybean complex futures. Bayesian tests for market efficiency are performed on the cash and futures prices. The test results reject the presence of nonstationary roots, leading to the conclusion that the markets are not efficient. Different cross-hedging strategies are designed and analyzed for eight different hedging horizons in order to maximize the expected profit and utility of the crusher. A Bayesian approach is employed to estimate the parameters, which is consistent with expected utility maximization in the presence of estimation risk. The investigation reveals that both whole cottonseed and cottonseed products can be successfully cross-hedged using soybean complex futures. The profitability of cross-hedging cottonseed products depends not only on the appropriate size of the contract but also on the optimal choice of strategy consistent with the time of placing and lifting hedge and the appropriate hedging horizon.Marketing,