Jonathan K. Yoder

A bivariate Markov regime switching GARCH approach to estimate time varying minimum variance hedge ratios

This article develops a new bivariate Markov regime switching BEKK-Generalized Autoregressive Conditional Heteroscedasticity (GARCH) (RS-BEKK-GARCH) model. The model is a state-dependent bivariate BEKK-GARCH model and an extension of Grays univariate generalized regime-switching (GRS) model to the bivariate case. To solve the path-dependency problem inherent in the bivariate regime switching BEKK-GARCH model, we propose a recombining method for the covariance term in the conditional variance-covariance matrix. The model is applied to estimate time-varying minimum variance hedge ratios for corn and nickel spot and futures prices. Out-of-sample point estimates of hedging portfolio variance show that compared to the state-independent BEKK-GARCH model, the RS-BEKK-GARCH model improves out-of-sample hedging effectiveness for both corn and nickel data. We perform Whites (2000) data-snooping reality check to test for predictive superiority of RS-BEKK-GARCH over the benchmark model and find that the difference in variance reduction between BEKK-GARCH and RS-BEKK-GARCH is not statistically significant for either data set at conventional confidence levels.

Playing with Fire: Endogenous Risk in Resource Management

Prescribed fire as a wildfire risk mitigation tool is receiving increasing attention in the United States after a century of emphasis on suppression. A dynamic economic model of prescribed fire use, precaution, and timing is developed and applied to three important policy issues: vegetation management on the wildland-urban interface; the effect of liability on vegetation management decisions; and the problem of heavy initial fuel loads after years of suppression and fuel accumulation. Numerical simulation results are presented as illustrations of the analytical model.

Estimating the Structure of Market Reaction to News: Information Events and Lumber Futures Prices

We develop a new event-study technique, the distributional event response model (DERM), appropriate to relatively slowly evolving information events. We apply the model to twelve years of daily lumber futures prices and analyze the effects of three different types of information releases: (a) monthly housing starts estimates, (b) aperiodic administrative and judicial announcements about U.S.-Canada trade disputes, and (c) novel and unprecedented court decisions related to the Endangered Species Act (ESA). The information releases are different in ways that predict their relative speeds of impoundment in prices. We find that housing start events are absorbed more quickly than trade events, which are absorbed more quickly than ESA events.

Economics and Prescribed Fire Law in the United States

Prescribed burning is increasingly recognized as a useful but risky land management and conservation tool. Common law relating to prescribed fire is generally predicated on negligence rules. However, virtually all states also have statutory law specifying liability rules or criminal penalties for prescribed burning, and the laws in many states have been changing substantially in recent years. We develop an economic model of the incentive and welfare effects of prescribed burning, where both the burner and potential victims of escaped fires can reduce expected damage with precautionary effort. The model provides implications regarding the comparative advantages of strict liability versus negligence rules. We then examine the characteristics and geographic distribution of prescribed fire liability law in the United States in the context of the model. Specifically, we discuss possible economic underpinnings of the recent emergence of statutes in southeastern states that are more supportive of prescribed fire use, despite its associated risks.

BioEarth: Envisioning and developing a new regional earth system model to inform natural and agricultural resource management

As managers of agricultural and natural resources are confronted with uncertainties in global change impacts, the complexities associated with the interconnected cycling of nitrogen, carbon, and water present daunting management challenges. Existing models provide detailed information on specific sub-systems (e.g., land, air, water, and economics). An increasing awareness of the unintended consequences of management decisions resulting from interconnectedness of these sub-systems, however, necessitates coupled regional earth system models (EaSMs). Decision makers’ needs and priorities can be integrated into the model design and development processes to enhance decision-making relevance and “usability” of EaSMs. BioEarth is a research initiative currently under development with a focus on the U.S. Pacific Northwest region that explores the coupling of multiple stand-alone EaSMs to generate usable information for resource decision-making. Direct engagement between model developers and non-academic stakeholders involved in resource and environmental management decisions throughout the model development process is a critical component of this effort. BioEarth utilizes a bottom-up approach for its land surface model that preserves fine spatial-scale sensitivities and lateral hydrologic connectivity, which makes it unique among many regional EaSMs. This paper describes the BioEarth initiative and highlights opportunities and challenges associated with coupling multiple stand-alone models to generate usable information for agricultural and natural resource decision-making.

Liability, incentives, and prescribed fire for ecosystem management

Prescribed fire is widely viewed as a useful but risky ecosystem management tool, and liability is a crucial issue for prescribed burning on private and public land. Basic liability rules motivate landowners to reduce risk when making choices about the use of fire. Liability therefore influences land use through incentives, and so has important consequences for the larger ecological landscape. Strict liability rules may lead to too little prescribed fire use, while negligence rules may, under certain circumstances, lead to too much. Although prescribed fire provides broad public benefits, such as reduction of wildfire risk or enhanced ecosystem health, the application of liability rules by courts often discourages its use as a vegetation management option. Various approaches exist for improving the laws and regulations surrounding prescribed fire.

Linking Human Health and Livestock Health: A “One-Health” Platform for Integrated Analysis of Human Health, Livestock Health, and Economic Welfare in Livestock Dependent Communities

Background For most rural households in sub-Saharan Africa, healthy livestock play a key role in averting the burden associated with zoonotic diseases, and in meeting household nutritional and socio-economic needs. However, there is limited understanding of the complex nutritional, socio-economic, and zoonotic pathways that link livestock health to human health and welfare. Here we describe a platform for integrated human health, animal health and economic welfare analysis designed to address this challenge. We provide baseline epidemiological data on disease syndromes in humans and the animals they keep, and provide examples of relationships between human health, animal health and household socio-economic status. Method We designed a study to obtain syndromic disease data in animals along with economic and behavioral information for 1500 rural households in Western Kenya already participating in a human syndromic disease surveillance study. Data collection started in February 2013, and each household is visited bi-weekly and data on four human syndromes (fever, jaundice, diarrhea and respiratory illness) and nine animal syndromes (death, respiratory, reproductive, musculoskeletal, nervous, urogenital, digestive, udder disorders, and skin disorders in cattle, sheep, goats and chickens) are collected. Additionally, data from a comprehensive socio-economic survey is collected every 3 months in each of the study households. Findings Data from the first year of study showed 93% of the households owned at least one form of livestock (55%, 19%, 41% and 88% own cattle, sheep, goats and chickens respectively). Digestive disorders, mainly diarrhea episodes, were the most common syndromes observed in cattle, goats and sheep, accounting for 56% of all livestock syndromes, followed by respiratory illnesses (18%). In humans, respiratory illnesses accounted for 54% of all illnesses reported, followed by acute febrile illnesses (40%) and diarrhea illnesses (5%). While controlling for household size, the incidence of human illness increased 1.31-fold for every 10 cases of animal illness or death observed (95% CI 1.16–1.49). Access and utilization of animal source foods such as milk and eggs were positively associated with the number of cattle and chickens owned by the household. Additionally, health care seeking was correlated with household incomes and wealth, which were in turn correlated with livestock herd size. Conclusion This study platform provides a unique longitudinal dataset that allows for the determination and quantification of linkages between human and animal health, including the impact of healthy animals on human disease averted, malnutrition, household educational attainment, and income levels.

Contract Duration and the Division of Labor in Agricultural Land Leases

Short-term contracts provide weak incentives for durable input investment if post-contract asset transfer is difficult. Our model shows that when both agents provide inputs, optimal contract length balances weak incentives of one agent against the other. This perspective broadens the existing contract duration literature, which emphasizes the tradeoff between risk sharing and contract costs. We develop hypotheses and test them based on private grazing contracts from the Southern Great Plains. We find broad support for the implications of our model. For example, landowners provide durable land-specific inputs more often under annual versus multiyear contracts.

The economic impact of malignant catarrhal fever on pastoralist livelihoods

This study is the first to partially quantify the potential economic benefits that a vaccine, effective at protecting cattle against malignant catarrhal fever (MCF), could accrue to pastoralists living in East Africa. The benefits would result from the removal of household resource and management costs that are traditionally incurred avoiding the disease. MCF, a fatal disease of cattle caused by a virus transmitted from wildebeest calves, has plagued Maasai communities in East Africa for generations. The threat of the disease forces the Maasai to move cattle to less productive grazing areas to avoid wildebeest during calving season when forage quality is critical. To assess the management and resource costs associated with moving, we used household survey data. To estimate the costs associated with changes in livestock body condition that result from being herded away from wildebeest calving grounds, we exploited an ongoing MCF vaccine field trial and we used a hedonic price regression, a statistical model that allows estimation of the marginal contribution of a good’s attributes to its market price. We found that 90 percent of households move, on average, 82 percent of all cattle away from home to avoid MCF. In doing so, a herd’s productive contributions to the household was reduced, with 64 percent of milk being unavailable for sale or consumption by the family members remaining at the boma (the children, women, and the elderly). In contrast cattle that remained on the wildebeest calving grounds during the calving season (and survived MCF) remained fully productive to the family and gained body condition compared to cattle that moved away. This gain was, however, short-lived. We estimated the market value of these condition gains and losses using hedonic regression. The value of a vaccine for MCF is the removal of the costs incurred in avoiding the disease.

Livestock vaccinations translate into increased human capital and school attendance by girls

African pastoralists’ decision to vaccinate cattle generates significant household income, translating into broad societal goals. To fulfill the United Nation’s Sustainable Development Goals (SDGs), it is useful to understand whether and how specific agricultural interventions improve human health, educational opportunity, and food security. In sub-Saharan Africa, 75% of the population is engaged in small-scale farming, and 80% of these households keep livestock, which represent a critical asset and provide protection against economic shock. For the 50 million pastoralists, livestock play an even greater role. Livestock productivity for pastoralist households is constrained by multiple factors, including infectious disease. East Coast fever, a tick-borne protozoal disease, is the leading cause of calf mortality in large regions of eastern and Southern Africa. We examined pastoralist decisions to adopt vaccination against East Coast fever and the economic outcomes of adoption. Our estimation strategy provides an integrated model of adoption and impact that includes direct effects of vaccination on livestock health and productivity outcomes, as well as indirect effects on household expenditures, such as child education, food, and health care. On the basis of a cross-sectional study of Kenyan pastoralist households, we found that vaccination provides significant net income benefits from reduction in livestock mortality, increased milk production, and savings by reducing antibiotic and acaricide treatments. Households directed the increased income resulting from East Coast fever vaccination into childhood education and food purchase. These indirect effects of livestock vaccination provide a positive impact on rural, livestock-dependent families, contributing to poverty alleviation at the household level and more broadly to achieving SDGs.