H. Alan Love

Measuring the Degree of Market Power Exerted by Government Trade Agencies

The principle of profit maximization is used to derive an equilibrium condition for noncompetitive markets and to provide explicit parametric tests for market power exerted in both domestic and foreign markets by a government trade agency. Our study goes beyond previous work by considering simultaneous exertion of market power in both domestic and foreign markets and by jointly estimating market power parameters with cost and demand parameters. These innovations allow nested tests of market power as opposed to prevailing nonnested tests based on simulation models or conditional tests based on prior estimates of demand and cost parameters. Japan is found to exert a high degree of monopsony power in the world wheat market and no monopoly power in the domestic market.

Specification issues and confidence intervals in unilateral price effects analysis

This paper contributes to the economics and econometrics literature on unilateral effects analysis. It introduces the Rotterdam demand system; considers the effect and importance of demand restrictions for minimizing the mean-squared error of price simulations; demonstrates that approximate price changes are often misleading indicators of exact price changes; and uses bootstrap techniques to determine confidence intervals and standard errors for simulated price changes, allowing determination not only of their economic significance but also of their statistical significance.

Comparing the value of Southern Oscillation Index-based climate forecast methods for Canadian and US wheat producers

Southern Oscillation Index (SOI) based forecasting methods are compared to determine which method is more valuable to Canadian and US wheat producers. Using decision theory approach to valuing information, the more commonly used three-phase method of El Nino, La Nina, and other is compared to a five-phase system. Because of differences in growing season and yearly SOI classification schemes, two different three-phase methods are used. The five-phase system is based on the level and rate of change of the SOI over a 2 month period. Phases are consistently negative, consistently positive, rapidly falling, rapidly rising, and near zero. As expected, results vary by the method used. Winter wheat producers in Illinois place no value on either of the SOI-based forecasting systems. Producers at seven of the 13 sites prefer the five-phase method over either of the three-phase method (spring wheat producers in Manitoba, Alberta, North Dakota and South Dakota, along with winter wheat producers in Oklahoma, Texas, and Washington). The value of the five-phase approach is up to 70 times more valuable than the three-phase approach. Producers growing spring wheat in Saskatchewan and Montana, along with winter wheat producers in Ohio and Kansas value the three-phase approach more than the five-phase. In this case, the value of the three-phase system is up to two times more valuable than the five-phase system. Depending on expected price and region, the values of the SOI-based forecasts range from 0 to 22% of the value of perfect forecasts. In both absolute and percentage of perfect forecasts, producers in Oklahoma, Texas, Manitoba, Saskatchewan, and South Dakota value either system more than producers in the remaining regions. Economic value and distributional aspects of the value of climate forecasts have implications for producers, policy makers, and meteorologists. Finally, the results clearly suggest all producers will not prefer one forecast type. Forecasts need to be tailored to specific regions.

Evolution of Agricultural Land Leasing Models: A Survey of the Literature

Issues relating to agricultural tenancy have been viewed as important economic questions since the early writings of Smith and Mill. At the close of the twentieth century, interest in these issues remains strong. In developing countries with agrarian economies, this interest is stimulated by the perceived importance of land lease arrangements in either fostering or impeding economic development. In the United States, where the proportion of farmland operated under lease arrangements has increased from 35% in 1950 to 43% in 1992 (USDA 1992), concern focuses on efficiency of resource use and issues such as effects of absentee landownership and tenant farming on the adoption of soil-conserving production practices.

Distinguishing the Source of Market Power

Structural models used to measure market power, though widely employed, continue to be criticized. We compare alternative market power tests, including nonparametric and Solow residual-based (SRB) tests. We develop SRB methods that permit nested testing for both monopolistic and monopsonistic market power by the same firm. These tests and a set of nonparametric tests are implemented to examine market power exertion by U.S. cigarette manufacturers from 1977 to 1993. All tests indicate that cigarette manufacturers exerted monopsonistic power in the upstream tobacco market. They are mixed on whether monopolistic power exertion was exerted in the downstream market.

Returns to Soybean Producers from Investments in Promotion and Research

U.S. soybean producers have been cooperatively investing in both production research and demand promotion for nearly four decades to enhance the profitability and international competitiveness of their industry. Have producers benefitted from their contributions to soybean checkoff program activities over the years? How has the return to investments in soybean production research compared to that of soybean demand promotion investments? The overall positive returns to producers over the study period resulted primarily from promotion activities. Production research contributed negatively to overall producer returns from soybean checkoff investments.

Conflicts between Theory and Practice in Production Economics

nomic relationships allows multiple theoretical models to explain essentially the same behavior. At the same time, indirect measurement places great demands on data to test theory. For example, using parametric tests for profit maximization requires estimating second-order curvature parameters to ascertain whether parameters exhibit certain properties. It may be difficult to determine second-order substitution effects using related price data, which in practice are often highly collinear. As technical demands placed on data for testing underlying theory increase, conflicts between theory and empirical evidence should also be expected to rise.

EXAMINING PACKER CHOICE OF SLAUGHTER CATTLE PROCURMENT AND PRICING METHODS

Using daily fed cattle purchase transaction records collected by the Packers and Stockyards Programs over the period April 1992 to April 1993, we identify characteristics associated with the choices of fed cattle procurement and pricing methods. The methodology involves the use of a multinomial logit model. Regional concentration; processing capacity; number of head per lot; average weight per head; cattle type; yield grade, quarterly grade, seasonality, and distance from packing plants play a significant role in determining the methods of procurement and pricing chosen by packers. The method chosen by packers to procure fed cattle also affects the choice of a given pricing method.

A REVIEW OF ALTERNATIVE EXPECTATIONS REGIMES IN COMMODITY MARKETS: SPECIFICATION, ESTIMATION, AND HYPOTHESIS TESTING USING STRUCTURAL MODELS

Price expectations play a critical role in commodity markets where producers must make input decisions well before output is realized. This paper brings together alternative expectations regimes, their estimation, and hypothesis tests for use in structural commodity models to determine their use by commodity producers. Extrapolative mechanisms and rational expectations are considered under risk neutrality and risk aversion. The assumptions implicit in the use of aggregate data in these models are made explicit. Structural models using individual survey data are discussed. While Muths rational expectations hypothesis has found widespread acceptance in the macroeconomic literature, empirical results from industry studies indicate that commodity producers may have heterogeneous price expectations, with no single expectations hypothesis dominating. This is not surprising given that different producers possess different information and have different costs associated with information collection and processing.

Flexible public policy: The case of the United States wheat sector

Abstract This paper tests the proposition that flexible policy rules that tie program instrument settings to changes in market conditions can improve economic welfare compared to the prevailing practice in the United States of setting agricultural policy instruments at fixed levels once every 4 years. Flexible policy rules are obtained for the U.S. wheat sector using stochastic control methods. A constraint structure representing producer and consumer behavior and a policy criterion function representing societys weighting of various groups are estimated. It is shown that the flexible policy rules developed in this paper outperform historic policy instrument settings across a wide spectrum of economic conditions.