Lindon J. Robison

Social capital and household income distributions in the United States: 1980, 1990

Abstract This paper asked if changes in social capital influence the level and disparity of household income in the United States. Social capital is defined in this paper as ones sympathy (antipathy) for others and ones idealized self. Changes in social capital are expected to produce the following economic consequences. First, increases in social capital are expected to alter the terms of trade and to increase the likelihood of trades between friends and family. Second, increases in social capital are expected to increase an economic agents concerns for the external consequences of his or her choices, internalizing what otherwise would be considered externalities. Third, increases in social capital between firms are expected to increase the likelihood that they will act in their collective interest. Fourth, increases in social capital are expected to increase the opportunities for specialization and the likelihood of trade. Finally, increases in social capital are expected to raise the average level of income and reduce the disparity of income. This paper empirically tested the relationship between changes in social capital indicator variables and changes in the average and coefficient of variation (CVs) of household income. State CVs and averages of household income were calculated for all 50 states and for different races/ethnic groups using the U.S. Census data for 1980 and 1990. Social capital indicator variables selected to measure changes in social capital included measures of family integrity including the percentages of households headed by a single female with children; educational achievement variables including high school graduation rates; crime rate variables including litigation rates; and labor force participation rates. The social capital indicator variables appeared to be significantly correlated with each other. However, in 1980, the percentages of households headed by a single female with children was not significantly related to the birth rates of single teens. By 1990, however, a strong correlation was found between the percentages of households headed by a single female with children and the birth rate of single teens. Income inequality among U.S. households measured using CVs increased between 1980 and 1990 in all 50 states. The largest increase in CVs was among white households. The smallest increase in CVs was among Asian households. The states with the largest increase in the ratio of 1990 and 1980 CVs were Arizona, Wyoming, Maine, Vermont, and Texas. Half of the states reported decreases in real household income between 1980 and 1990. Those states with the largest percentage decrease in real income were Wyoming, Alaska, Montana, Louisiana, and West Virginia. The largest percentage increase in real income was reported by Connecticut, New Jersey, Rhode Island, and Massachusetts. State CVs and averages of household income were regressed on four factors or subsets of social capital indicator variables. The four factors used to predict CVs and averages of household income were generally statistically significant. The findings of this report support the conclusion that changes in social capital have a significant effect on the disparity and level of household income.

APPLICATIONS OF SOCIAL CAPITAL THEORY

Experiments and studies were conducted to investigate the role of social capital. Social capital (relationship to others) is a productive asset which is a substitute for and complement to other productive assets. The productivity of social capital leads to the expectation that firms and individuals invest in relationships. Data were collected to answer the following questions: Does the identity (relationship) of trading partners affect selling and buying prices; the acceptance of catastrophic risk; the choice of share or cash leases in agriculture; loan approval; and the banks investment to retain customers? The evidence is in the affirmative.

Improving the Efficiency of Stochastic Dominance Techniques Using Convex Set Stochastic Dominance

The advantages of convex set stochastic dominance (CSD) are discussed in terms of extending other stochastic dominance criteria in a way which will decrease Type II errors (large efficient sets) without increasing the Type I errors (inaccurate rankings). An empirical example ranking pest management strategies demonstrates the potential of CSD by reducing the efficiency set by almost 60% without imposing additional constraints on the preference set. It is suggested that CSD may permit more imprecise representations of risk preferences, avoiding utility measurement problems, and still identify efficient sets of acceptable sizes.

Cash Rents and Land Values in U.S. Agriculture

A firm-level land valuation model is deduced which depends on the expected growth rate in net cash returns to land, inflation expectations, and property, income, and capital gains taxes. It is then aggregated to obtain an aggregate two-sector land valuation model. That model is then estimated for twenty-four individual states for the period 1960–81. In addition, a pooled cross-sectional regression model is estimated combining the twenty-four-state data. The model results demonstrate that significant state differences exist in the land market and that in many states, agricultural land values are influenced by nonagricultural demand for land.

Application of Portfolio Theory to Farmer and Lender Behavior

Randomness of commodity output and prices in agriculture are well-known phenomena that have plagued both farmers and their lenders as they develop plans and financial programs for the coming year. The same phenomena have plagued researchers who attempt to model the farmer-lender relationships for improved explanations of farmer and lender behavior. Early decision models of resource allocation under risk sought to maximize expected returns. However, in the early 1700s, Bernoulli demonstrated the irrationality of this criterion in explaining gambling behavior. More recently, portfolio theory, as developed by Markowitz and Tobin with extensions by Sharpe and Lintner, has improved our ability to analyze farmer and lender behavior under risk by considering variance as well as the expected value of returns. This paper discusses developments in portfolio theory, reviews its application to farmer and lender behavior, considers its limitations, and suggests several extensions to account for asset liquidity, liquidity risk, and portfolio adjustments. We conclude with recommendations for future application of portfolio theory to farmer and lender behavior.

Social Capital and the Terms of Trade for Farmland

Social capital is a person or groups sympathy for or sense of obligation to another person or group. This article introduces social capital into a neoclassical model of farmland exchange and shows how relationships alter the terms of trade. Empirical evidence from a survey of farmers shows that the type of relationship farmland sellers have with farmland buyers has a statistically significant and economically important effect on the minimum-sell price for farmland. Compared to the minimum-sell price when selling to a total stranger in an arms-length transaction, farmland sellers discount prices to friendly neighbors and relatives and require a premium from unfriendly neighbors and influential people in the community.

An Appraisal of Expected Utility Hypothesis Tests Constructed from Responses to Hypothetical Questions and Experimental Choices

A decision problem exists when the possible consequences of a decision are important and the best choice is not obvious (Anderson, Dillon, Hardaker). Moreover, when the consequences of each choice are described in probabilistic terms, the decision problem is said to exist under uncertainty. The expected utility hypothesis (EUH) characterizes the following solution for an uncertain decision problem: (a) identify the action choices available-a, . . .

Evaluating the Influence of Personal Relationships on Land Sale Prices: A Case Study in Oregon

Land transactions typically involve substantial personal interaction between buyer and seller. Despite this fact, researchers have made little attempt to determine how personal relationships influence the terms of trade for a property. In this study, Linn County, Oregon, farm land sales from 1992–1997 were examined to better understand and quantify the influences of personal relationships. Transactions between relatives and neighbors involved special considerations with greater frequency than did those between strangers and acquaintances. Transactions between parent and child and between neighbors brought significantly less than sales between strangers. Transactions resulting from a realtor or advertisement sold at a significant premium. (JEL Q24).

Social Capital and Economic Cooperation

The socioeconomic movement is an effort to better explain human behavior by combining insights of economists and sociologists. This paper contributes to the socioeconomic literature by including the influence of relationships, values, and social bonds in the neoclassical economic model by introducing social capital coefficients. The usefulness of the resulting social capital model is demonstrated theoretically in a two-firm cooperative model and tested empirically using data from a survey of students who allocate their time between individual and joint projects.

An Empirical Analysis Of The Intertemporal Stability Of Risk Preference

The interval measurement approach was used to obtain risk preference measures for 23 Michigan farmers in 1979 and again in 1981. This paper analyzes how risk preferences of the individuals in this group of decision-makers changed over a two year time period. Risk preferences were most stable near typically experienced personal income levels.