PREVENTABLE FOOD BORNE ILLNESS WITH DOSE-RESPONSE DAMAGES: OPTIMAL SHARING OF PREVENTION BETWEEN CONSUMERS AND PROCESSORS AND THE EFFECT OF PRODUCT LIABILITY

As public concern for food safety burgeons concerned policy makers search for ways to manage the risk inherent to food consumption. Product liability laws may serve as efficient means to induce socially optimal levels of care or may efficiently complement regulation of potentially injurious activities. However, two characteristics common to many food borne illness cases are often not considered in the standard liability economics model that yields these prescriptions: dose-response damage functions and victim damage prevention. This paper explores how dose-response relationships common to the biology and epidemiology of food borne illness may effect the shape of resulting social welfare functions and privately chosen prevention efforts under different liability rules when both processor and consumer affect damages. Dose-response damage functions yield social objectives with multiple local optima that may dictate diametrically opposite policy prescriptions in terms of prevention sharing between consumer and processor. Small changes in the relative efficacy of either party's preventative effort may dictate discrete changes in the socially optimal prescription. Similarly, legal rules that fail to recognize both parties' contribution to damage (e.g., strict processor or consumer liability) or incorrectly define due care standards for processor negligence or contributory negligence may cause private decisions to differ discretely from socially optimal behavior.Food borne illness, dose-response, liability, Agricultural and Food Policy, Food Consumption/Nutrition/Food Safety,

Performance Payments for Environmental Services : Lessons from Economic Theory on the Strength of Incentives in the Presence of Performance Risk and Performance Measurement Distortion

Payments for environmental services (PES) schemes have become an increasingly accepted and popular mode for governmental and non-governmental agencies to use in addressing local and regional declines in ecosystem services. A defining characteristic of performance payments, a sub-category of PES schemes, is the linking of individual payments to environmental outputs themselves rather than to the inputs that affect the production of environmental services. Such a focus raises several practical issues during implementation. We review and translate key aspects of the economic theory of incentives into the context of performance payments schemes with special attention paid to two practical issues. The first is that of structuring individual incentives to account for risks outside the individual’s control such as weather that can affect the level of environmental services generated. The second deals with the possibility of distortion in the measurements of environmental services used to determine individual payments under PES schemes. Each challenge is accompanied by a discussion of advice based upon economic theory and a discussion of examples from different countries where such implementation issues arise.Optimal Incentive Contracts, Payments for Environmental Services, Performance Incentives, Distortion

Social Preferences and Relational Contracting Performance: An Experimental Investigation

We examine how social preferences affect behavior and surplus in relational contracts. Experimental subjects participate in a contracting environment similar to Brown, Falk, and Fehr [Brown, M., Falk, A. & Fehr, E., “Relational Contracts and the Nature of Market Interactions, Econometrica, 72 (2004):747-780] and in social preference experiments adapted from Charness and Rabin [Charness, G. & Rabin, M. “Understanding Social Preferences with Simple Tests.” The Quarterly Journal of Economics 117(2002): 817-869]. Subjects’ behavior during the Charness and Rabin experiment is a significant predictor of behavior and outcomes observed during the subsequent multi-period, finite-horizon, relational- contracting environment, which features market power, unenforceable performance, reputation formation and endogenous matching of trading partners. Compared to subjects who respond to the Charness-Rabin games in a fashion consistent with purely self-interested, competitive or reciprocal social preferences, buyers and sellers with alternative social preference structures engage in contracts with substantially higher quality and price, which leads to greater surplus for both parties. A key difference is that self-interested, competitive and reciprocal buyers respond to early-period shirking by extending subsequent offers that are less generous to the seller, while buyers with other social preferences extend subsequent offers that are more generous. Reciprocal and competitive sellers and, to a lesser extent, self-interested sellers, deliver sub-contractual levels of quality more often, which substantially lowers buyer and total welfare. We conclude that intentional or ‘cold’ measures of social preferences have considerable predictive power in dynamic, interactive (or ‘hot’) economic settings.Contracts; relational contracts; implicit contracts; market interaction; experimental economics; repeated transaction; social preferences.

THE DESIGN AND PRICING OF FIXED AND MOVING WINDOW CONTRACTS: AN APPLICATION OF ASIAN-BASKET OPTION PRICING METHODS TO THE HOG FINISHING SECTOR

Asian-Basket type moving window contracts are an increasingly used risk management tool in US hog sector. The moving window contract is decomposed into a portfolio of a long Asian-Basket put and a short Asian-Basket call option. A projected breakeven price is used to determine the floor price, and then Monte Carlo simulation methods are used to price both a moving and a fixed window contract. These methods provide unbiased pricing of fixed and moving window hog finishing contracts of one-year duration.Livestock Production/Industries,

EXPLAINING ECONOMIC LINKAGES BETWEEN FARMS AND LOCAL COMMUNITIES: LOOKING BEYOND FARM SIZE

We explore the economic linkage between farms and neighboring communities using primary data collected from a state-wide cross section of 461 dairy farms. Empirical results implicate not only farm characteristics such as size, operator tenure and ethnicity but also the characteristics of the local community.Institutional and Behavioral Economics,

Underpinnings for Prospective, Net Revenue Forecasting in Hog Finishing: Characterizing the Joint Distribution of Corn, Soybean Meal and Lean Hogs Time Series

This research focuses on developing a biannual net revenue forecasting model for hog producers based on Monte Carlo simulation of the joint distribution of hog, corn and soybean meal price series. The relative forecasting power of historical volatility, implied volatility and GARCH-based volatility is examined. Consistent with recent research, the performance of these three methods is both commodity and horizon specific, which means there is no single best predictor. However, implied volatility often performs well. Thus, implied volatility is used to forecast variance. Historical covariance is introduced to capture the co-movement of the three price series. Our forecasting model performs well out of sample; most of the realized net revenues fall in 95 percent prediction interval. Based on this forecasting model and the assumption of a utility function, we compare our prospective evaluation with retrospective evaluation of risk management strategies. Though prospective evaluation is not significantly superior to retrospective evaluation for this particular dataset, it is useful because all the market information has been incorporated in this model and because it did protect producers from adverse price movements.Agricultural Finance, Livestock Production/Industries,

Ohio State Food Waste Collaborative

IMPACT. 1: Held Harnessing Consumers and Communities to Help Meet U.S. Food Waste Reduction Goals, a conference, webinar and networking event on August 26, 2016. 85 attended via the webinar while 85 people registered as in-person participants or speakers for a total of 170 registrants. -- 2. Provided consults and connections for more than 20 entities (some individuals, some groups) both on campus and from the broader community as follow up from the Networking Event with plans to reach out and follow up with others attending the event who listed possible collaborative possibilities. -- 3. Helped support the organization and staffing of a composting pilot project in Scott House, Blackburn and Haverfield residence halls on OSU. This project employs 3 OSU students and involves several additional student volunteers working in close consultation with residence hall, housekeeping and FOD staff.OSU PARTNERS: College of Food, Agricultural, and Environmental Sciences; (Agricultural, Environmental and Development Economics & Agricultural Communications); College of Engineering (City and Regional Planning); OSU Facilities Operations and Development; Initiative for Food and AgriCultural Transformation (InFACT); Discovery Theme; OSU Sustainability Fund; Food Innovation Center; Sustainable and Resilient Economy; (SRE) Discovery Theme; SUSTAINS Learning Community; Scott House, Blackburn and Haverfield residence hallsCOMMUNITY PARTNERS: Resources 100 LTD; Ohio EPA; Pennington Biomedical Research CenterPRIMARY CONTACT: Brian Roe ([email protected])The Ohio State Food Waste Collaborative is a collection of researchers, practitioners, and students working together to promote the reduction and redirection of food waste as an integral part of a healthy and sustainable food system. In addition to conducting research, the Collaborative currently offers consultation on implementation and evaluation of projects focused on food waste reduction and redirection efforts at the consumer and household level within Ohio State University and across the state of Ohio

TOURNAMENTS, RISK PERCEPTIONS, AND FAIRNESS

This paper reports the results of an economic experiment investigating human subjects' preferences for two types of contracts tournaments and fixed performance standard contracts. Willingness to pay data was elicited through an auction and results suggest that subjects prefer fixed performance standard contracts to tournaments. Primary drivers of this result appear to be subjects' perceptions that tournaments are more risky and less fair than fixed performance standard contracts. Surprisingly, measures of the relative profitability of the contracts did not correlate with willingness to pay. Our results can shed light on why agricultural producers express frustration over tournaments and can provide insights on contract and policy design.Research Methods/ Statistical Methods,

THE WELFARE EFFECTS OF BANNING TOURNAMENTS WHEN COMMITMENT IS IMPOSSIBLE: SOME RESULTS FROM THE BROILER SECTOR

We consider the implications of banning tournament contracts and replacing them with fixed performance standard contracts in a multi-period model where the principal cannot commit to future contract parameters. A ban cannot increase total surplus in a static model. In a dynamic model, however, a ban of tournaments can increase total surplus by mitigating the ratchet effect. Calibrating our model to published data from the broiler sector, we find that a ban on use of contemporaneous and lagged relative performance data does not improve total surplus under most circumstances but could increase total surplus in a few instances of low wealth and unitary relative risk aversion. A more enforceable, period-by-period ban is even less likely to be welfare enhancing and does not hinder the principal from redistributing a fixed compensation pool from low ability growers to high ability growers.Livestock Production/Industries,

AJAE Appendix: Contract Enforcement, Social Efficiency, and Distribution: Some Experimental Evidence

The material contained herein is supplementary to the article named in the title and published in the American Journal of Agricultural Economics, May 2007, Volume 89, Issue 2.Marketing,