Myles J. Watts

Are Crop Yields Normally Distributed? A Reexamination

This article demonstrates that normality test procedures that include individual detrending of short-term panel data can severely reduce the power of normality tests and strongly bias normality tests in a Type II direction. An alternative error component implicit detrending procedure is suggested that demonstrates higher power for the distributions examined. Both procedures are applied to a large data set with normality of yield residuals being rejected. Assuming normality is shown to reduce potential premium rates for a large number of producers in an existing crop insurance product.

An Examination of the Effects of Price Supports and Federal Crop Insurance Upon the Economic Growth, Capital Structure, and Financial Survival of Wheat Growers in the Northern High Plains

This study examines the effects of both farm price support programs and federally subsidized crop insurance programs upon the profitability, capital structure, and financial survival rates of High Plains wheat producers. The alternative farm programs are analyzed in an intertemporal dynamic setting. Results indicate that the producers first response to risk is to restrict the use of debt. Price support programs and crop insurance are substitutes in reducing producer risk. The availability of crop insurance in a setting with price supports allows producers to service higher levels of debt with no increase in risk. Copyright 1996, Oxford University Press.

Public Grazing in the West and “Rangeland Reform '94”

Private grazing fees differ substantially and systematically across states in the West. In contrast, federal policy establishes the same grazing fee on federal lands, regardless of location. We analyze locational differences in private grazing fees with an econometric model. Differences in private grazing fees across states can be explained largely by economic forces consistent with a competitive spatial market. A uniform increase in the federal grazing fee will lead to a large variation in economic effects between states and across individual public lands ranchers. We propose the permanent transfer of public grazing rights to the private sector.

Chance-Constrained Financing as a Response to Financial Risk

The results of a recent survey suggest that many decision makers view financial risk in a safety-first context. Imposing safety-first chance constraints on potential financial ratios or flows can be difficult with traditional methods. This is particularly true with financial ratios when both the numerator and denominator are random and are affected by endogenous decisions. A model and numerical example are presented which enforce probabilistic or chance constraints upon potential debt/asset ratios in a multiperiod linear program. The model can be easily modified to probabilistically constrain alternative financial performance measures such as current ratios, working ratios, or cash flows.

Inflation and Machinery Cost Budgeting

Machinery costs are affected by inflation which, if not correctly considered, will bias cost estimates. Accurate estimates of machinery costs are essential in budgeting costs of crop production in farm policy programs, crop hedging decisions, and general cost of production research. Machinery decisions relating to replacement, size, and custom or leasing alternatives are also improved by realistic budgeting techniques. The objective of this article is to examine appropriate adjustments for inflation in developing machinery costs through budgeting techniques. The authors attempt to demonstrate the adjustments necessary in both capital and traditional budgeting models to place cost estimates on a real basis. Capital budgeting is first compared with traditional budgeting. Next, by the use of a simple machinery example, the necessary adjustments to account for inflation are shown for a capital budgeting model that does not include income tax considerations. Similarly, the inflation adjustments are demonstrated for a traditional budgeting model that does not include income tax considerations. Finally, a capital budgeting model including income tax aspects is examined in reference to real and nominal after-tax cost estimates.

(How) Do Prerequisites Matter? Analysis of Intermediate Microeconomics and Agricultural Economics Grades

Success in intermediate economics and agricultural economics classes with respect to course prerequisites was evaluated. Prerequisites were statistically important for both intermediate microeconomics andin two of the three agricultural economics courses evaluated. The primary finding was that—for three of the four courses evaluated—the higher the proportion of students who completedthe listed prerequisite, ceteris paribus, the lower the grade for any given student. Results also indicate that students with higher ex ante GPAs, andto some extent higher math equivalent SAT scores, received higher grades.

Contractual stipulations, resource use, and interest groups: Implications from federal grazing contracts☆

Abstract The process of determining grazing fee levels for use of public lands has been highly controversial. Moreover, it has often been asserted that increases in grazing fees on federal lands will have no effect on stocking. Yet, environmental groups have advocated higher fees. In this paper we show that stocking does respond to changes in the grazing fee and the debate between environmental groups and livestock owners is not simply a question of distributional equity. Fees affect resource allocation and have become a focal point for both interest groups. The importance of the contractual stipulations between ranchers and the federal government to that outcome is demonstrated.

The SURE program and incentives for crop insurance participation: A theoretical and empirical analysis

Purpose - The aim of this paper is to show how provisions of the Supplemental Revenue Assistance Payments (SURE) program impacts production practices, and empirically examine changes in crop insurance participation rates as a means of measuring producer responses to the program. Design/methodology/approach - The structure of the SURE program is described and a stylized theoretical model is used to show the SURE programs effects on farm-level crop insurance and production decisions. A county-level cross-sectional empirical specification with regional fixed effects is used to test the hypothesis that producers who are most likely to benefit from production practice re-optimization are more likely to participate in crop insurance. Findings - Results from empirical analyses of corn, soybean, and wheat production areas show that the SURE program has had substantial impacts on crop insurance participation by producers who are more likely to receive SURE indemnities and exploit moral hazard opportunities. Research limitations/implications - Because the program has only recently been introduced, empirical estimates of the programs long-run impacts are not estimable. Practical implications - Results indicate that the program can have unexpected market consequences, with increased frequency and size of SURE indemnity claims than the Congressional Budget Office anticipated and increases in aggregate tax payer subsidies for both the crop insurance and SURE program. These outcomes can have important implications on motivating a restructuring of the program in the next farm bill. Social implications - Increased tax payer expenditures on the SURE and crop insurance programs in the form of subsidies can lead to non-trivial reductions in social welfare. Originality/value - This research is the first to develop a rigorous model of the SURE programs impacts on producer responses and associated effects on crop insurance participation. The study also provides empirical evidence of these effects.

Performance of Risk-Income Models Outside the Original Data Set

Selected risk programming solutions (i.e., profit maximization, Target-MOTAD, and MOTAD) are tested in an economic environment outside the data set from which they were developed. Specifically, solutions are derived from either a longer 10-year (1965-74) or shorter 6-year estimation period (1969-74), and then, they are tested for consistent risk-income characteristics over a later 10-year period (1975-84). Risk solutions estimated from earlier periods perform well in the later test period in spite of different economic conditions between time periods. However, favorable performance may be related to the specific example used in this analysis. Further testing for other farm situations is needed before general conclusions can be reached.

On the Function Coefficient, Euler's Theorem, and Homogeneity in Production Theory

This paper makes three related points useful in teaching first-year graduate production theory. First, the local applicability of the classical function coefficient idea for short-run nonhomogeneous production technologies is shown for returns to scale, satisfaction of second-order and total conditions for profit maximization, and delineation of the economic region of production in factor space. Second, the general applicability of Eulers Theorem results to nonhomogeneous (variable-proportional-return) cases is developed. Lastly, it is shown that short-run, nonhomogeneous production/yield functions are fully consistent with long-run linear homogeneity.