Michael R. Reed

Rate Making for Farm-Level Crop Insurance: Implications for Adverse Selection

This research identifies two problems in the new Federal Crop Insurance that may cause adverse selection: (a) the relationship between rate making and expected yields for individual farmers, and (b) the bias introduced in coverage protection when trends are not used to establish expected yields. A theoretical investigation using the normality assumption demonstrates the potential severity of these problems, and empirical results from farm-level data lend further support. As crop insurance changes to individualized methods of protection, these issues will be particularly important for developing rates.

Monetary Impacts and Overshooting of Agricultural Prices in an Open Economy

This articles focus is on the time adjustment paths of the exchange rate and prices in response to unanticipated monetary shocks. First, we expand the theoretical specification of the overshooting hypothesis by generalizing Dornbuschs model to include a third sector (i.e., agricultural prices). Second, we employ Johansens cointegration test along with a vector error correction model to investigate whether agricultural prices overshoot in an open economy. The empirical results indicate that agricultural prices adjust faster than industrial prices to innovations in the money supply, affecting relative prices in the short run, but strict long-run money neutrality does not hold. Copyright 2002, Oxford University Press.

Locational determinants of the US direct foreign investment in food and kindred products

This article investigates locational determinants of US direct foreign investment (DFI) in food and kindred products by using data from six industrialized countries from 1983 to 1989. Separate equations were fitted to explain DFI position, outflow, and reinvestment. Cultural linkages, trading blocs, host market size, tax considerations, exchange differentials, and host market growth rates are found to be significant determinants of DFI in food manufacturing. Wage rate differentials were found to be important in the position and reinvested equations, but not in the outflow equation. Thus, cheap labor may not be as important in attracting DFI as in the past.

Overshooting of Agricultural Prices in Four Asian Economies

This article examines the impacts of monetary policy on agricultural prices in four Asian economies using time series analysis and graph theory. The estimations clearly show that agricultural prices overshoot their long-run equilibrium values for Korea, Philippines, and Thailand, and the overshooting for agricultural prices is larger than for manufactured prices. Impulse-response functions and variance-decomposition analysis based on directed graphs and causal structures highlight the complex interplay among the variables in the model and how those relationships differ by country. Money supply changes clearly affect real variables and relative prices for all countries either through overshooting or non-neutrality of money.

Measuring the Intensity of Competition in the Japanese Beef Market

A residual demand model for beef exports to Japan is specified and estimated. The objective is to estimate the extent of market power. It is assumed that each exporting country faces a downward-sloping residual demand curve, which reflects the market demand minus the supplies of competitors, and that exporters maximize profit through their output decisions. The analysis is disaggregated by beef cut and form to capture the variation by beef market segments. The results indicate that the highest markup of price over marginal cost belongs to U.S. frozen ribs, the only indication of market power by U.S. exporters. Canada is found to have limited market power, whereas Australia and New Zealand enjoy some market power, including five chilled beef categories.

MACROECONOMIC FACTORS AND THE THOROUGHBRED INDUSTRY

A capitalization approach is used to estimate econometrically the effects of exchange rate, interest rate and tax law changes on thoroughbred yearling prices. The analysis found that exchange rate and tax law changes have significantly influenced yearling prices since the early 1980s. Another serious price-reducing event was the 1986 tax law change. Both of these factors have counteracted the positive impact of increased purse rates on yearling prices.

U.S. Cigarette Smoking and Health Warnings: New Evidence From Post World War II Data

A framework was developed in order to specify a model for annual U.S. per capita consumption of cigarettes. Three separate time related variables were utilized to measure the effects of health related information regarding smoking. The empirical results from the post World War II data set reveal that while prices and income are important determinants of cigarette consumption, the estimates for both were in the inelastic range. The age distribution of the adult population is also an important variable. While the development of the filter tip has been successful in stimulating smoking, the low tar and nicotine innovation has not had a statistically significant effect. Health information has repeatedly produced substantial short and long run effects. Current consumption is falling at an annual rate of between 3 to 4 percent.

The Canada U.S. free trade agreement: Competitive tradeoffs between foreign direct investment and trade

This paper assesses the impact of the Canada U.S. Free Trade Agreement on exports and foreign direct investment of processed foods. Results indicate that U.S. exports to Canada more than doubled, while Canadian exports to the U.S. nearly doubled after the implementation of the Canada U.S. Free Trade Agreement in 1989. Regression results of the covariance model on panel data show that U.S. and Canadian food processing firms appear to use both exports and foreign direct investments as complementary market access strategies.

Mandatory Production Controls and Asset Values: A Case Study of Burley Tobacco Quotas

Mandatory production control programs affect asset values. Changes in the implied value of burley tobacco quota and impacts on agricultural land values are estimated using a capitalization approach. Recent instability in the tobacco program has created uncertainty about the future profitability of quota ownership. The procedure uses data on individual parcel transactions and regresses the parcels price on hedonic factors including the parcels tobacco quota. Results indicate tobacco quota values have fluctuated as much as 75% between some years. The implication is that mandatory controls affect both the value and risk associated with ownership of the production right.

USING CAPITALIZATION THEORY TO MODEL FARMLAND PRICES

Knowledge of how various factors affect agricultural land rents and land values is important for individual and public policy decisions. This study utilizes an asset-pricing model based on capitalization theory to incorporate the structural relationships among interest rates, inflation and agricultural land rents in order to estimate agricultural land values. This approach uses parcel-specific data to provide empirical results that compare the capitalized value of certain agricultural land characteristics and the rents associated with those characteristics.