Man-Keun Kim

Uncertainty Discounting for Land-Based Carbon Sequestration

The effect of stochastic factors on soil carbon makes the quantity of carbon generated under a sequestration project uncertain. Hence, the quantity of sequestered carbon may need to be discounted to avoid liability from shortfalls. We present a potentially applicable uncertainty discount and discuss difficulties that might arise in empirical use. We insist that the variance in historical crop yields across geographical areas is used to derive a proxy variance for forming an uncertainty discount for carbon projects. Application of our approach suggests that project level uncertainty discounts would be 15–20% for the East Texas region.

Introduction of the trend-adjusted crop insurance program: Participation- and coverage-level responses

Purpose - Recently, USDA-RMA introduced a Trend Adjusted-Actual Production History (TA-APH) program, which increases APH by a trend factor to cover yield changes over time. The purpose of this paper is to examine the effects of the TA-APH program on farmer participation, coverage election, and risk by analyzing data before and after the program. Design/methodology/approach - Since the program was carried out in selected counties, the authors employ a difference in differences approach doing comparisons of insurance participation and coverage levels between eligible and ineligible counties. Findings - The authors find that farmers within the counties where the TA-APH program was available experienced an increase in insured acres of 3 percent for corn and 5 percent for soybeans. The authors also find the farmers eligible for the program purchased lower coverage levels relative to those not eligible. However, the magnitude of that negative effect is relatively small, -0.9 percent in corn and -1.3 percent in soybeans. Collectively the evidence shows the TA-APH program does increase the guaranteed yield level mitigating farmer risk. Research limitations/implications - The data set used only permitted analysis at the county level, thus the authors could not look at the individual farmer choices. Practical implications - The results suggest that if a greater level of farmer risk protection is desired from crop insurance, the authors find that the trend adjustment as implemented was a successful way to achieve this. Originality/value - This paper contributes to the literature on the crop insurance by evaluating the program controlling for a non-participating groups, farming experience, liability rates, and subsidy rates. In doing this, it fulfills an identified need to study the actual impact on participation rates and coverage levels elected.

U.S. milled rice markets and integration across regions and types

Rice is among the top seven U.S. major crops in terms of harvested acres – covering over 2.6 million acres – and sixth in terms of sales, with annual cash receipts around 3.1 billion dollars. This paper investigates whether U.S. milled rice markets are integrated across regions and whether these markets are integrated by rice types. Understanding dynamic relationships across regions and types provides important insights for risk management and policy making. Of the four major producing regions, three are in the South – Arkansas-Missouri, Louisiana-Mississippi, and Texas – and the other is California. There are different rice types associated with a production region. California mainly produces short and medium grain; while Arkansas, Texas, and Louisiana primarily produce long and also medium grains. We determine the potential market integration of these rice markets by applying a Vector Error Correction Model and Directed Acyclic Graphs to monthly free on board milled rice price data from August 1986 to D...

A Note on Mitigating the Adverse Scale Effects Associated With Daily Driving Restrictions

This paper investigates the role of additional regulation in mitigating the ‘adverse scale effect’ associated with daily driving restrictions, which has become a popular regulatory tool used to control episodic air pollution internationally, especially in developing countries. We find that although an annual vehicle registration tax reduces the incentive to purchase additional vehicles among households whose sole purpose for doing so is to ‘cheat’ the restriction (i.e., the ‘adverse scale effect’), it does so with an external cost. The cost occurs because households whose purpose for purchasing an additional vehicle is not to cheat the restriction are given the same disincentive with the tax. We show how simple one- and two-stage lotteries can be used to not only discriminate between cheater and non-cheater households (in particular, to avoid providing a disincentive to the latter type of household), but also to provide an even stronger disincentive to the former.

Inclusion of Risk in Public Works Projects: An Example With Waste Recycling Options

Often public works are made with little if any concern for risk. Analysis of public works investments especially during the 1990s and 2000s assumed rapid employment growth would continue into the future. However, with the “Great Recession,” the assumption of continued high employment growth, and the absence of risk considerations in public works investments, a number of local government bankruptcies occurred. Public works decision makers must aim to identify public works investments that not only have the highest positive net returns under average conditions but also yield highest net returns under unfavorable conditions. This article discusses the incorporation of risk into public works investments and the use of Monte Carlo simulation to complete a standard investment or public works appraisal. The article completes an investment appraisal of a material recovery facility (MRF) system and discusses how risk could be addressed and analyzed by public decision makers.