MODELING TECHNICAL TRADE BARRIERS UNDER UNCERTAINTY

As traditional forms of agricultural protection continue to decline, agricultural interests will likely seek alternative protection in the form of technical barriers. A flexible framework for theoretically and empirically analyzing technical barriers under various sources of uncertainty is derived. Attention is focused on uncertainty arising from the variation in the product attribute levels, a source not yet considered by the literature. Ex ante and ex post densities of domestic and international quantities and prices as well as the densities of their respective extreme-order statistics are derived. An example is presented to illustrate the application of the developed framework.International Relations/Trade,

Trade Agreements, Political Economy and Endogenously Incomplete Contracts

We develop a political economy model of trade agreements following along the line of Grossman and Helpman (1995a) yet incorporating contracting costs, uncertainty and multiple policy instruments. We show that rent-seeking efforts do not affect tariff rates as they are offset by the substitution effect of domestic production subsidies. Similar to Horn et al (2010), we find the coexistence of uncertainty and contracting costs make optimal trade agreements incomplete contracts. Our model helps explain differential treatment on subsidies, countervailing duties, and the national treatment principle - all key provisions of the current WTO agreement.Trade agreement, political economy, contracting cost, uncertainty JEL Classification:, Agricultural and Food Policy, International Relations/Trade, Political Economy, Public Economics,

WEATHER-BASED ADVERSE SELECTION AND THE U.S. CROP INSURANCE PROGRAM: THE PRIVATE INSURANCE COMPANY PERSPECTIVE

Surprisingly, investigations of adverse selection have focused only on farmers. Conversely, this article investigates if insurance companies, not farmers, can generate excess rents from adverse selection activities. Currently political forces fashioning crop insurance as the cornerstone of U.S. agricultural policy make our analysis particularly topical. Focusing on El Nino/La Nina and winter wheat in Texas, we simulate out-of-sample reinsurance decisions during the 1978 through 1997 crop years while reflecting the realities imposed by the risk-sharing arrangement between the insurance companies and the federal government. The simulations indicate that economically and statistically significant excess rents may be garnered by insurance companies through weather-based adverse selection.Risk and Uncertainty,

Rating Crop Insurance Policies with Efficient Nonparametric Estimators that Admit Mixed Data Types

The identification of improved methods for characterizing crop yield densities has experienced a recent surge in activity due in part to the central role played by crop insurance in the Agricultural Risk Protection Act of 2000 (estimates of yield densities are required for the determination of insurance premium rates). Nonparametric kernel methods have been successfully used to model yield densities; however, traditional kernel methods do not handle the presence of categorical data in a satisfactory manner and have therefore tended to be applied on a county-by-county basis. By utilizing recently developed kernel methods that admit mixed data types, we are able to model the yield density jointly across counties, leading to substantial finite sample efficiency gains. Findings show that when we allow insurance companies to strategically reinsure with the government based on this novel approach they accrue significant rents.discrete data, insurance rating, kernel estimation, yield distributions, Risk and Uncertainty,

ON CHOOSING A BASE COVERAGE LEVEL FOR MULTIPLE PERIL CROP INSURANCE CONTRACTS

For multiple peril crop insurance, the U.S. Department of Agriculture'Â’s Risk Management Agency estimates the premium rate for a base coverage level and then uses multiplicative adjustment factors to recover rates at other coverage levels. Given this methodology, accurate estimation of the base coverage level from 65% to 50%. The purpose of this analysis was to provide some insight into whether such a change should or should not be carried out. Not surprisingly, our findings indicate that the higher coverage level should be maintained as the base.Risk and Uncertainty,

Transferring Water in the American West: 1987-2005

Rising urban and environmental demand for water has created growing pressure to re-allocate water from traditional agricultural uses. Water markets are powerful institutions for facilitating this re-allocation, yet the evolution of water markets has been more complicated than those for other resources. In this paper, we set the context for water marketing with an overview of western water law that highlights unique aspects of water law that affect how or whether a water market can develop. Second, we present new, comprehensive data on the extent, nature, and timing of water transfers across 12 western states from 1987-2005. We describe the methodology and decision rules used to collect water transfer information. Third, we identify water market trends and movements to provide a greater understanding of the institutional structure and the mechanisms by which water is transferred in the American West

Water Markets in the West: Prices, Trading, and Contractual Forms

Rising urban and environmental demand for water has created growing pressure to re-allocate water from traditional agricultural uses. The evolution of water markets has been more complicated than those for other resources. In this paper, we first explain these differences by examining water rights and regulatory issues. Second, we place our research in the context of the economics literature on water marketing. Third, we present new, comprehensive data on prices and the extent, nature, and timing of water transfers across 12 western states from 1987- 2005. We find that prices are higher for agriculture-to- urban trades versus within-agriculture trades, in part, reflecting the differences in marginal values between the two uses. Prices for urban use are also growing relative to agricultural use. Markets are responding in that the number of agriculture-to-urban transactions is rising, whereas the number of agriculture-to-agriculture transfers is not. Further, there is a shift from using short-term leases to using multi- year leases of water and permanent sales of water rights. This pattern underscores the need to consider the amounts of water obligated over time, rather than examining only annual flows in assessing the quantities of water traded as is the common practice in the literature. Considering water obligated over time, termed committed water, we find significantly more is transferred and the direction of trading is different than if the focus is on annual flows. Finally, the data reveal considerable variation in water trading across the states.

Transferring Water in the American West: 1987-2005

Rising urban and environmental demand for water has created growing pressure to re-allocate water from traditional agricultural uses. Water markets are powerful institutions for facilitating this re-allocation, yet the evolution of water markets has been more complicated than those for other resources. In this paper, we set the context for water marketing with an overview of western water law that highlights unique aspects of water law that affect how or whether a water market can develop. Second, we present new, comprehensive data on the extent, nature, and timing of water transfers across 12 western states from 1987-2005. We describe the methodology and decision rules used to collect water transfer information. Third, we identify water market trends and movements to provide a greater understanding of the institutional structure and the mechanisms by which water is transferred in the American West

Law and the New Institutional Economics: Water Markets and Legal Change in California, 1987-2005

New Institutional Economics (NIE) focuses on the interaction between legal (formal and informal) institutions and economic behavior. Both directions of causality concern researchers in the field: how institutions influence economic behavior and how economic factors affect institutional change. As such, the NIE abandons standard neoclassical economics assumptions that individuals have perfect information about the market and important current or future events, as well as the assumption that transaction costs of exchange are zero. As a result, NIE introduces observed organization and information costs to neoclassical analysis, thereby providing more analytical richness and power for examining empirical activities. In the spirit of the NIE, we examine the interactions among regulation, property rights, and water markets in California from 1987–2005. We are interested in whether and how the definition of water rights and the regulation of water transfers have affected observed market activity in the extent and pattern of water trades and their duration, and the nature of the contracts used (short-term leases, long-term leases, and sales)

Nonparametric estimation of crop insurance rates revisited,

With the crop insurance program becoming the cornerstone of U.S. agricultural policy, recovering accurate rates is of paramount interest. Lack of yield data presents, by far, the most fundamental obstacle to recovery of accurate rates. This article employs new methodology to estimate conditional yield densities and derive the insurance rates. In our application, we find the nonparametric kernel density estimator requires an additional twenty-six years of yield data to estimate the shape of the conditional yield densities as accurately as the recently developed empirical Bayes nonparametric kernel density estimator. Such methodological improvements can significantly aid in ameliorating the data problem