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Research Papers in Economics

Abstracts of Selected Papers 
"Impacts of Coal  Severance  Taxes: A Rural Devel-
opment Perspective." Jill L. Findeis and Susan  G. 
Richards (Pennsylvania State University) 
Given the high rural unemployment rates witnessed 
in Pennsylvania, the impacts of a proposed coal 
severance tax on mining employment remains an 
important issue in Pennsylvania. This study exam-
ines the demand for Pennsylvania steam coal, pro-
viding estimates of the conditional and uncondi-
tional price elasticities of demand. Changes in coal 
output under alternative tax rates are estimated and 
translated into mining employment loss estimates, 
given a "worst case" scenario. Under this scenario, 
the maximum employment losses attributable to a 
severance tax on steam coal are compared to the tax 
revenues generated. 
"An Empirical Evaluation of Estimates of the Minimum 
Risk Hedging Ratio." Laura Bertoni (Cornell 
University) 
Optimal hedging levels and ratios have been deter-
mined theoretically, but application to real situations 
depends on estimated parameters. This paper 
examines how estimates of the minimum risk hedge 
change with changes in the sampling period and 
hedging interval. The mean and standard deviation of 
the hedge ratios are calculated for six time intervals 
for anticipatory hedges of corn production in western 
New York using five different sample periods. The 
research concluded that estimates of the minimum 
risk hedge are more sensitive to changes in the 
sampling period than to differences in the hedging 
interval over the harvest season. 
"The Importance of Skill and Exprience in Commercial 
Fisheries.*' Stephen R. Crutchfield and John M. Gates 
(University of Rhode Island) 
Fishing is traditionally characterized as an occupation 
where skill, experience and luck play significant roles in 
determining economic performance of the individual 
enterprise. This paper develops a model to quantify 
the importance of varying skill levels for commercial 
fisheries. Using as a case study the New England 
otter trawl fishery a general linear model is used to 
predict gross revenue per day as functions of several 
vessel characteristics and activity levels. The 
residuals are then corrected for heteroscedasticity and 
subject to a cluster analysis which classifies 
observations according to their distance from the 
mean predicted value of the dependent variable. The 
data are then partitioned into five classes and dummy 
variables defined to rank observations by their gross 
revenues. Finally, a general linear model is refitted 
using these dummy variables as indicators of the 
captain's skill. It is found that correcting for skill 
increases the precision of the estimates. Additionally, 
substantial vari- 
ations were found between 
4'low skill" and "high 
skill" vessels; the highest skill vessels typically 
showed revenue seven to ten times those of the lowest 
skill vessels. 
"Estimating the Economic Benefits of Tourism: The 
Mansions of Newport, Rhode Island." Stephen R. 
Crutchfield (University of Rhode Island) 
In recent years many communities have begun to 
stress tourism and related activities are substitutes 
for more traditional economic activity. This paper 
examines the experience of Newport, Rhode Island; 
in particular, the economic benefits to Newport 
from tourism activity attracted by seven historic 
properties managed by the Preservation Society of 
Newport County. A survey of visitors was 
conducted to determine the level and variety of 
tourist expenditures by visitors. A weighting factor 
was derived to account for multiple purpose visits 
and correctly attribute a partial share of associated 
expenditures to the tourism opportunities afforded 
by the seven mansions. Based on the survey results it 
is concluded that the mansions attract between $35 
and $56 million annually in direct and indirect 
expenditures to the city of Newport, thus generating 
substantial economic benefit for the local economy. 
"Alternative Waste End Fee Methods of Revenue 
Generation for the New Hampshire Hazardous Waste 
Cleanup Fund." Bruce E. Lindsay and Stephen J. 
Graefe (University of New Hampshire) 
In reviewing the New Hampshire system of waste 
end fees for hazardous waste generation, three areas of 
concern surface. They are: (1) the need for incentives 
to modify the waste management behavior of 
hazardous waste generators, (2) the need to lessen 
the regressiveness of the present flat rate fee system, 
and (3) the need to raise additional revenues for the 
Hazardous Waste Cleanup Fund. The study of two 
waste end fee variations ("net and recycling ratio" 
and "net and number of employees") suggests that 
each has the potential to successfully address the 
three areas of concern. 
'' Computable General Equilibrium Model Structures 
with Markets for Transferable Discharge Permits." 
James S. Shortle (Pennsylvania State University) and K. 
D. Willett (Oklahoma State University) 
Transferable discharge permit (TDP) systems are 
drawing considerable attention as an alternative to the 
existing regulatory approach to pollution control in 
the U.S. The main appeal of the approach is that 
appropriately defined TDP systems will be cost-
effective in achieving environmental standards 
provided that permit markets are competitive. 
However, the realized gains from replacing existing Abstracts  Selected Papers     219 
policy structures with TDPs will depend upon how a 
number of practical design issues are resolved. This 
paper presents two mathematical programming 
structures for computing competitive equilibria for an 
economy in which pollution control is provided by 
TDP systems. The purpose of these structures is to 
provide tractable frameworks for numerically 
examining the impacts of alternative TDP 
configurations in a general competitive equilibrium 
setting. The structures are explicitly developed for a 
differentiated ambient concentration type of TDP 
system. However, they may be modified to examine 
other configurations. A discussion of such mod-
ifications and of the implementation of the models 
for policy analysis is provided. 
"Economies of Size and Substitution Elasticities for 
Milk Based on a Translog Production Function." Boris 
E. Bravo-Ureta (University of Connecticut) 
This paper presents empirical estimates of economies 
of size and Alien elasticities of substitution for milk 
production based on a modified translog production 
function. The results show that the function 
coefficient increases monotonically with farm size 
suggesting an "L" shaped long run average cost of 
production for milk. Alien elasticity of substitution 
measures indicate that milk production technology is 
relatively inflexible especially as farm size becomes 
larger. 
"An Analysis of Production Decisions and Operator 
Characteristics of Pennsylvania Dairy Farms." Mar-
garetha C. Haeussler and William Grisley (Pennsyl-
vania State University) 
This paper presents an application of a model based 
on the duality relationship between the production 
function and the variable profit function for a sample 
of dairy farms in Pennsylvania. In addition to 
analyzing the more general production response re-
lationships, the model provides an assessment of the 
influence of the years of operator experience and 
operator education levels. A dual approach is 
formulated, employing a normalized restricted 
translog profit function and the corresponding system 
of derived share equations. Estimates of price 
elasticities and elasticities with respect to the fixed 
factors are derived. 
"The Effects of Various Dairy Price Support Alter-
natives.*' Paul C. Westcott and Clifford M. Carman 
(ERS, USD A) 
Three scenarios of a dairy sector model are simulated 
through 1987 to examine some of the implications for 
the dairy sector of the effects of alternative price 
support levels. Results indicate that rising milk cow 
inventories and production per cow will again lead to 
increases in production near or exceeding increases in 
commercial disappearance un- 
less price supports are substantially reduced. Con-
sequently, in the absence of substantial price support 
reductions, net government removals of dairy 
products would be expected to remain large and 
could begin trending upward again. 
"Modeling the Cost Effectiveness of Soil Conservation 
Practices for Stream Protection." Bradley M. Crowder 
and C. Edwin Young (ERS, USDA, Pennsylvania State 
University) 
This paper discusses the cost effectiveness of best 
management practices (BMPs) for controlling soil 
and nutrient losses resulting from crop production, 
and is derived from the economic evaluation of the 
Conestoga Headwaters Rural Clean Water Program 
(RCWP) project in southeastern Pennsylvania. 
Physiochemical and economic modeling of BMP 
impacts were undertaken to characterize the cost 
effectiveness and overall effectiveness of BMPs for 
controlling agricultural nonpoint pollution. The 
CREAMS model was used to estimate field-edge 
losses of soil, surface runoff losses of nitrogen (N) 
and phosphous (P), and nitrate (NO3) leached out of 
the root zone. 
"Potential Impact of Selling Costs on Seller Behavior in 
a TDR Market." Mary Patricia Gallagher (New York—
New Jersey Milk Marketing Area, Office of the Market 
Administrator) and Donn A. Derr (Rutgers University) 
The impact of commission rates, federal tax policies 
(cash vs. installment sale basis), the value of DRs per 
acre, the significance transaction costs and alternative 
real property tax policies are examined. The results 
indicate that the real estate commission is a 
significant transaction cost but should not be avoided 
given the value of real property involved and the 
complexities of land development. Shifting this cost 
to the public is possible as government participation 
increases. Installment sales of DRs offer little 
advantage if the future cash flow is discounted. 
Imposing roll-back penalties under use value 
assessment will increase selling costs, but they are 
partially offset by federal tax savings. 
"Technological Structure of U.S. and Northeast Ag-
riculture." Conrado M. Gempesaw II and James W. 
Dunn (Pennsylvania State University) 
Past studies of national or regional farm input de-
mand and output supply behavior use single equation 
models with theoretical foundations based on ad hoc 
decision rules. More recent studies use duality theory 
motivated models and improve upon these ad hoc 
formulations. However, these studies still assume 
input-output separability (one-output case) or two-
output separability conditions. This paper conducts 
technology tests on the production structure of U.S. 
and Northeast agriculture to verify the validity of 
previous studies' output and input 220    October 1985 
model specifications. Furthermore, a test is also 
conducted to evaluate whether Northeast product 
supply and factor demand responses are significantly 
different from national responses. The test results 
indicate that previous approaches of evaluating 
national or regional technologies through the use of 
single output or two-input measures may provide 
biased estimates due to model misspecifica-tion. In 
addition, equality between national and Northeast 
regional responses is rejected, indicating the 
importance of estimating regional elasticities. 
"Pesticide Productivity and Potato Productions Rela-
tions Under Collinearity." Douglas D. Ofiara (Uni-
versity of Georgia), John M. Gates and Thomas F. 
Weaver (University of Rhode Island) 
Empirical studies often estimate input-output rela-
tionships on a total rather than unit basis (e.g., per 
acre) basis. This practice seems an overreaction to 
the dangers of ratio variables. In the case of field 
crops, this practice invites heteroscedasticity and 
can aggravate collinearity. To illustrate these points, 
this paper describes the results obtained with a 
particular data set. The data comprised cross-
sectional, time series primary data collected by 
Ofiara from Southern New England potato pro-
ducers. 
Failure to obtain data on pest population counts 
before and after pesticide applications resulted in a 
severe identification problem. Specifically, coefficient 
estimates associated with pesticide inputs are 
confounded estimates of two opposite effects. One 
effect is the productivity of pesticide inputs. It is 
an indirect effect exerted through a pesticide kill 
ratio. The second effect is the behavioral response of 
producers to elevated pest populations. The bias 
which results from this identification problem 
resulted in a coefficient which exceeds its standard 
error of estimation by a factor of 2.3 but which has 
the "wrong" sign. 
Collinearity diagnostics are useful in a narrow, 
purely numerical sense, to indicate the maximum 
imprecision in coefficients. In a larger sense, how-
ever, the problem is one of incremental information 
contained in collinear variables. By pinpointing 
variables which are collinear, the diagnostics are 
also useful in formulating future sampling designs; 
both to reduce collinearity per se, and to improve 
the specification of variables to be measured in a 
sample. 
NJARE 
"The Relationship Between Farm Size and Technology 
Adoption: Some Empirical Results." Michele C. Marra 
(University of Maine) and Gerald A. Carlson (North 
Carolina State University) 
Just and Zilberman have developed a theoretical 
model of technology adoption under uncertainty that 
gives rise to some theoretical ' 'expansion paths" of 
technology adoption with firm size. This paper 
extends their theory to include human and physical 
capital resource constraints on the adoption process 
and also provides some empirical evidence on the 
"expansion path" of the adoption of double cropping 
as a new technology. Tests of hypotheses on the 
important factors affecting the double cropping-farm 
size relationship are presented and discussed. 
"Changes in Transportation Costs and Interregional 
Competition in the U.S. Apple Industry." James W. 
Dunn and Lynn A. Garafola (Pennsylvania State 
University) 
An interregional competition model of the U.S. 
apple industry is constructed. This model includes 
the consumer products of fresh apples, applesauce 
and apple juice. The validation of the model showed 
that it did a good job of estimating consumer's 
quantity demanded and prices and a reasonable job 
of estimating utilization. This model was used to 
study the effects of transportation cost changes on 
the industry in the short- and intermediate run. The 
total production and consumption levels changed by 
moderate amounts with changing transport costs 
while the utilization of a region's crop was quite 
sensitive to such changes. 
* 'Analysis of the Impact of Fish Imports on Ex-Vessel 
Prices of New England Groundfish." D. H. Wang 
(National Marine Fisheries Service) and V. J. Norton 
(University of Maryland) 
A partial adjustment model was used to analyze the 
impact offish imports on domestic ex-vessel prices 
of six New England groundfish species. Monthly 
data from January 1974 to December 1982 were 
used in analyses with Zellner's seemingly unrelated 
regression procedures. The results indicate that fresh 
fish imports have an adverse effect on New England 
ex-vessel prices. Price-import flexibilities at sample 
means ranged between —0.04 and —0.17 for the six 
species. This indicates that in recent years, ex-vessel 
prices of these species would have been about four 
percent higher if fresh fish imports would have been 
10% lower. 

ABSTRACTS OF SELECTED PAPERS

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Research Papers in Economics