E. C. Pasour

An Opportunity Cost View of Fixed Asset Theory and the Overproduction Trap

In fixed asset and exit barrier theories, durable asset valuation is based upon acquisition prices, yielding downwardly biased rate-of-return estimates and erroneous implications that excess resources become trapped in production when product price expectations fall. Conventional asset valuation based on opportunity cost shows that excess resource applications are incompatible with rational producer behavior. Market failure conclusions of overproduction trap models are shown to be unfounded. A review of recently published agricultural economics texts illustrates how use of fixed asset theory in the college classroom obscures the concept of choice-influencing cost and the rule of resource allocative efficiency.

The Capitalization of Real Property Taxes Levied on Farm Real Estate

The capitalization of changes in property taxes levied on farm real estate is investigated. The per acre value of farm real estate in the United States is estimated as a function of the effective tax rate and as a function of three categories of independent variables which are related to agricultural productivity, farm size, and urban influence in a cross-section study. The effect of anticipated appreciation in farm real estate values is explored in estimating the extent of capitalization. The results of the study are consistent with the hypothesis that changes in property taxes are largely capitalized into farm property values.

A Public Choice Perspective on Agricultural Policy Reform: Implications of the New Zealand Experience

A public choice framework is used to interpret and explore the implications of the dramatic New Zealand economic reforms initiated in 1984. The New Zealand deregulation experience holds lessons for other countries attempting to limit rent seeking and rationalize farm policies. Economic analyses of protectionist policies helped to change public opinion, an important precursor to policy reform. The reform of farm policies was made easier because other sectors were simultaneously restructured. The New Zealand deregulation experience emphasizes the importance of the institutional framework for real world political processes and suggests that constitutional issues warrant more attention in public policy analysis. Copyright 1996, Oxford University Press.

Bureaucratic productivity: The case of agricultural research revisited

Conclusions and implicationsTwo questions related to the financing of agricultural research merit further study. First, to the extent that selective access to agricultural research is possible, there is no presumption that research results should be distributed in a way which gives everyone equal access. Moreover, the returns for a large part of agricultural research can be appropriated by the developer through patents, copyrights, and other means. Thus, there is no presumption that publicly financed research services should be equally available to everyone since, ‘in general, equal access to government services is neither necessary nor efficient’ (Goldin, 1977: 54). More attention should be devoted to the method of financing agricultural research — i.e., by taxation versus market prices.A second important question concerns how agricultural research services should be produced. In the case of a public good, it is necessary to provide the good collectively since, by definition, there is no way to make the service available selectively and, hence, private production is not feasible. There is evidence that a large part of agricultural research services are not public goods and, consequently, can be provided selectively by private producers. The advantage of private production is that goods and services are then subject to the ‘incorruptible judgment of that unbribable tribunal, the account of profit and loss’ (Mises, 1969: 35). Thus, the question of who should perform agricultural research — the private or the public sector — warrants more study.If, as appears to be the case, agricultural research is largely a private good, one would expect entry of new research firms until the rate of return is comparable with returns from other investments of comparable risk. Consequently, the apparent high rates of return from agricultural research should be viewed as suspect if (as seems likely) there are no significant entry barriers. The methods used in estimating ex post rates of return from agricultural research can be questioned on a number of grounds. Regardless of the accuracy of ex post rate of return estimates, however, it is not appropriate to assume that decision makers should base ex ante expectations on ex post rates of return. Moreover, the outside observer has no way to measure the ex ante cost and returns which motivate decision makers as they weigh the opportunity cost of additional research funds in agriculture in terms of the sacrificed alternatives associated with potential increases for agricultural price supports, prisons, defense, roads, welfare, etc. Furthermore, the discount rate is likely quite high for public expenditures due to the short time horizons of political decision makers. In view of these considerations, the conclusion that there is ‘substantial underinvestment’ of publicly funded agricultural research remains in doubt.

Real Property Taxes and Farm Real Estate Values: Incidence and Implications

The relationship between reductions in real property taxes and farm real estate values is investigated. Average per acre value of farm real estate in North Carolina is regressed on the tax rate and other variables relating to farm size, land productivity, urban influence, and recreational demand. The results indicate that property tax reductions for farm real estate are largely capitalized into higher real estate values. The effect of a given decrease in tax rate for owners of farm real estate is contrasted with a similar decrease for owners of residential real estate.

Cost of Production: A Defensible Basis for Agricultural Price Supports?

Price supports have been used to increase the price of various agricultural commodities in the United States since the 1930s. Although price supports were conceived as a way of increasing farm income relative to nonfarm income, the level at which prices should be supported has been a key issue. Various farm organizations, economists, and politicians have maintained since the early 1920s that prices of farm commodities should be maintained at levels sufficient to cover production costs (Luttrell). The parity price concept was, in itself, an attempt to relate the support price to production costs through the prices-paid index. The shortcom

Economic Growth and Agriculture: An Evaluation of the Compensation Principle

The feasibility of a program to insure farmers against losses due to economic growth is explored. Adjustment problems in agriculture are similar to those of other sectors. The feasibility of a general compensation policy to insure farmers against losses due to economic progress is questioned on practical and theoretical grounds.