Analyzing the effects of U.S. macroeconomic policy on U.S. agriculture using the USAGMKTS model

This report describes the results of simulating effects of U.S. macroeconomic policy on U.S. agriculture using the USAGMKTS model. The primary purpose for which the USAGMKTS model was developed is to determine the effects of potential changes in U.S. policy on the border prices of corn, sorghum, and soybeans. The USAGMKTS model is a member of a set of interlinked models at macroeconomic and sectoral levels of Mexico and the U.S. (with enough specification of the rest of the world to close the system). The effects of macroeconomic policy variables on macroeconomic variables affecting the agricultural sector are derived from the FAIRMODEL of the U.S. macroeconomy. These results will be used later to determine the effects of U.S. agricultural and macroeconomic policies on Mexican agriculture using the MEXAGMKTS model.Economic Theory&Research,Environmental Economics&Policies,Livestock&Animal Husbandry,Access to Markets,Markets and Market Access

SOME GUIDING PRINCIPLES FOR EMPIRICAL PRODUCTION RESEARCH IN AGRICULTURE

Constraints on production economic research are examined in three dimensions: problem focus, methodology, and data availability. Data availability has played a large role in the choice of problem focus and explains some misdirected focus. A proposal is made to address the data availability constraint. The greatest self-imposed constraints are methodological. Production economics has focused on flexible representations of technology at the expense of specificity in preferences. Yet some of the major problems faced by decision makers relate to long-term problems, e.g., the commodity boom and ensuring debt crisis of the 1970s and 1980s where standard short-term profit maximization models are unlikely to capture the essence of decision maker concerns.Production Economics,

A model of U.S. corn, sorghum, and soybean markets and the role of government programs (USAGMKTS)

This estimated model of corn, sorghum, and soybeans markets (USAGMKTS) serves as the U.S. agricultural sector in a study of the effects of U.S. agriculture and macroeconomic policy on Mexico's agricultural sector. This model of U.S. corn, sorghum, and soybeans markets also includes U.S. markets for beef, hogs, and poultry - because of their importance and endogeneity with respect to U.S. feed grain policies, which are major determinants of corn and sorghum prices. The model is part of a set of interlinked sectoral and macroeconomic models that link Mexico and the United States. This paper reports the results of the simulations of various alternative U.S. agricultural policy scenarios, to estimate the effects of various feed grain policy instruments. Plausible U.S. agricultural policy adjustments can alter border prices facing world trading partners by 10 to 15 percent. The extent of these adjustments depends heavily on the current state of the U.S. agricultural economy.Markets and Market Access,Access to Markets,Livestock&Animal Husbandry,Crops&Crop Management Systems,Economic Theory&Research

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,

TRANSACTION COSTS, FADS, AND POLITICALLY MOTIVATED MISDIRECTION IN AGRICULTURAL RESEARCH

This paper examines efficiency implications of national and local policies for fund allocation and management of agricultural research, which produce pure and impure public goods. The possibility is examined that competitive grants programs increase rent seeking activities by scientists relative to specific block grants or formula allocations and thereby reduce both the real resources available to produce traditional research outputs and the productivity with which research resources are used. Management of local research units, including advantages of incentive compatible contracts, is also considered. Additional conceptual and empirical work are needed before the issues are resolved.

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,

Setting Incentives for Scientists Who Engage in Research and Other Activities: An Application of Principal-Agent Theory

 The objective of this paper is to develop an optimal incentive system for multitaskingscientists in universities or professors under repeat contracting. With the aid of a principalagentmodel under repeat contracting, we show that (i) when a second task is assigned to aprofessor and the two tasks are related, the size of the optimal incentive rate for the first task isreduced in some situations but not others relative to that of a single task, (ii) with an increasein the noise in the technical relationship of the second task or imprecision in outputmeasurement, the optimal incentive rate for that task is reduced and for the first task may bereduced or increased , (iii) with greater efficiency of the professor in producing the secondoutput, as reflected in ability relative to cost of effort, the optimal incentive rate for the firsttask generally decreases, (iv) if the output of the professor’s two tasks are negativelycorrelated then the optimal incentive rate on the first task declines as the size of thiscorrelation increases. The size of the guarantee is always reduced as the professor’s ability fora task increases, but is increased as his cost of effort, noisiness of the technology ormeasurement of output, or correlation between the two outputs increases. It is also possiblethat, as a professor undertakes several difficult-to-measure tasks, the incentive rate will bereduced to the point that an optimal compensation system will involve only a guaranteedsalary, which is a very weak incentive for effort. Selective audits may be useful in thesesituations.incentives; Principal-agent model; Multitask; scientists; professors; respeat contracting; linear contracts

A SOLID WASTE PLAN FOR SOUTHEASTERN OKLAHOMA

Public Economics,

Risk Aversion, Liability Rules, and Safety

This paper investigates the performance of liability rules in two-party stochastic externality problems where negotiations are feasible and side payments are based on the realized level of externalities. Results show that an increase in polluter liability does not necessarily increase safety or efficiency in cases where the polluter is risk neutral. Complete polluter liability is found to yield Pareto optimality. When either party is risk averse, an increase in polluter liability may sometimes reduce safety and efficiency. If the polluter is risk neutral and the victim is risk averse, Pareto optimality is only achieved by assigning full liability on the polluter, i.e. giving the victim complete property rights to a clean environment. If the polluter is risk averse and the victim is risk neutral, no level of polluter liability is optimal. In this case, optimality can only be achieved through a contract on abatement activities, such that the risk-averse polluter receives a guaranteed payment regardless of the stochastic outcome.

THE DISTRIBUTIONAL EFFECTS OF LAND CONTROLS IN AGRICULTURE

The paper introduces a framework for analyzing the impacts of land control programs on agricultural production under heterogenous land qualities, heterogenous production technologies and imperfect capital markets. It shows that the introduction of diversion programs tends to benefit land owners while harming operators. Moreover, it tends to increase the separation of land ownership and operation and increase concentration among operators. Diversion programs tend to raise land prices lass than proportional to the increases in rental rates. They encourage the adoption of yield increasing technologies, and may also encourage adoption of cost reducing technologies when credit is a binding constraint. Participation in voluntary government programs tends to be greater in regions with higher costs, less efficient marginal technology and less efficient marginal land.Land Economics/Use,