Wesley N. Musser

Recreation Demand Equations: Functional Form and Consumer Surplus

The subject of recreation demand has increasingly attracted the attention of economic research. The demand equations resulting from this research follow the Hotelling-Clawson model of recreation demand, in which occasions (or days) recreated is specified as a function of average cost and average distance traveled per occasion and various combinations of other explanatory variables. Linear, quadratic, and semilog functional forms have been used widely in empirical applications of this model. Linear specifications have been employed often for computational or analytical ease (Burt and Brewer; Brown, Singh, and Castle; Cicchetti, Fisher, and Smith; Clawson and Knetsch). Other functional forms have been chosen frequently on the basis of statistical significance and consistency of the coefficients with theoretical expectations. Examples of a semilog form are Batie, Jensen, and Hogue; and Sawyer and Shulstad. A quadratic expression was chosen by Gum and Martin. A fourth functional form, log-log, also has appeared (Kalter and Gosse; Smith; Wetzstein and Green), but will not be considered here for reasons to be developed later. As the results of this study will demonstrate, the choice of functional form can have a significant effect on consumer surplus values derived from recreation demand equations. This paper presents a set of decision criteria for the choice between three popular functional forms that have been employed previously in recreation demand equations. The choice between linear and quadratic forms can be made via conventional hypothesis-testing procedures. The Box and Cox transformation procedure often allows choice between linear, semilog, and other power transformations of the dependent variable. The consequences of the choice of a particular functional form on consumer surplus also are investigated. The plan of the paper is first, to specify an appropriate set of regressors; second, to choose an appropriate functional form; and, finally, to demonstrate the effect of functional form on consumer surplus estimates derived from regression cost coefficients of recreation demand equations. The Choice of Regressors

Use of Biophysical Simulation in Production Economics

Simulation has become a standard methodology in agricultural economics with models being used in all aspects of the profession. Johnson and Rausser identify two major types of production simulation models in their recent survey of the topic—firm and process models. Firm models, especially those concerned with growth, are most prominent in the agricultural economics literature. However, Johnson and Rausser also review some application of process models, which emphasize specific types of firm decisions. Biophysical simulation models are a specific form of these models concerned with the interaction of weather, soil, and/or biological processes in agricultural production and/or environmental loadings. In the recent agricultural economics literature, these models often are identified as bio-economic simulators. However, similar models are being utilized to evaluate erosion. Since erosion is largely a physical process, biophysical simulation seems more appropriate for the general classification of models considered in this paper.

Makeham, J. P., and L. R. Malcolm. The Farming Game. Armidale, N.S.W., Australia: Gill Publications, 1981, 560 pp.,

The Farming Game is the agricultural management text for the 21st century. It provides a sophisticated, pragmatic and comprehensive analysis that is designed to give managers the right focus and clear vision necessary to operate a successful agricultural business. Taking an integrated approach, this revised edition covers all the vital aspects of farm management including finance, investment, decision analysis, economic thinking, growth, risk and marketing. All of the critical management issues are covered. This is essential reading for those seeking to manage a modern agricultural business and anyone involved in the agricultural supply chain that needs to understand the importance of farms as the core of agribusiness systems.

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Federal agricultural commodity programs generally have been assumed to reduce the income risk for farm firms, but limited empirical research exists on this proposition. This paper presents a study of the impact of the Food and Agriculture Act of 1977on income risk for a representative farm in Georgia. The model is used to derive an E-V frontier for a firm not participating in the program and for the same firm that is participating in the program. Results indicate that participation dominates nonparticipation except for higher level of expected net income.

Evaluating the Food and Agriculture Act of 1977 with Firm Quadratic Risk Programming

Agricultural economists have long recognized pest populations as common property resources, and, as such, pest control through chemical pesticide application involves a tradeoff between increased crop yields and reduced environmental quality (Carlson; Regev et al.). Integrated pest management (IPM) attempts to minimize this tradeoff by substituting pest information and management skills for chemical pesticides. In part, IPM involves monitoring pest populations in order to utilize beneficial biological interactions. Weather patterns, stage of crop growth, and natural biological enemies of pests are among the factors included in IPM. In addition, entomologists have extended the integrated control concept to include selective rather than nonselective pesticide application that is applied only when pest populations exceed the “economic threshold†level (Hall and Norgaard). In an earlier economic analysis of IPM, Hall concluded that the major advantages of IPM are: (1) a substantial reduction in overall pesticide use, (2) no significant reduction in profits, (3) no significant loss of yields, (4) an overall reduction in pest management costs, and (5) a reduction in risk for the producers.

AN ECONOMIC EXAMINATION OF AN INTEGRATED PEST MANAGEMENT PRODUCTION SYSTEM WITH A CONTRAST BETWEEN E-V AND STOCHASTIC DOMINANCE ANALYSIS

Numerous studies have investigated how farmers should use forward pricing markets, but only limited research exists on how farmers actually use these markets. This study relies on data from a real-time forward pricing game employed by Maryland grain marketing clubs from 1994 through 1998. Hypotheses are tested regarding the consistency of farmer behavior with the research literature on hedging. Findings indicate that farmers do not achieve price enhancement, a result consistent with the efficient market hypothesis. However, pricing behavior does not conform to the implications of efficient market models in a number of respects, suggesting farmers may form different expectations than those conveyed by forward prices.

Farmer Forward Pricing Behavior: Evidence from Marketing Clubs

Social desirability (SD) represents the problem of subjects responding with social norms rather than individual values. This paper briefly surveys the SD literature and considers its relevance for contingent valuation (CV) studies. In an empirical study, undergraduate students were administered the Marlowe-Crowne Social Desirability Scale, as well as CV questions. High SD scores were hypothesized to imply a greater likelihood of offering a protest reason for a zero bid and to increase bids for socially desirable commodities. While all hypotheses were not supported, the empirical results suggest that SD can influence CV responses and should not be dismissed prematurely.

An experiment in contingent valuation and social desirability.

Rotations have historically been used to alleviate pest problems in crop production. This paper considers methods of modeling rotations in linear programming models for Southeastern vegetable production. In such models, entering each possible crop rotation as a separate activity can be burdensome because of the large numbers of possible rotational alternatives. Conventional methodology for double crop rotations reduces the number of activities but must be adapted to accommodate triple crop rotational requirements in vegetable production. This paper demonstrates these methods both for a simple example and an empirical problem with numerous rotation alternatives. While the methods presented in this paper may have computational disadvantages compared to entering each rotation as a separate activity, they do have advantages in model design and data management.

A MATHEMATICAL PROGRAMMING MODEL FOR VEGETABLE ROTATIONS

The national economy has been increasingly subject to macroeconomic fluctuations in the 1970s. This paper demonstrates that these fluctuations have an important impact on state public finance. Tax revenues for these governments are directly related to the aggregate level of economic activity. However, the uncontrollability of such expenditure components as welfare, and the inflationary pressures in all program areas may increase expenditure levels in the face of declining revenue.Since public institutions of higher education rely heavily on financial support from state governments, the cyclical budgetary conditions of these governments have important implications for higher education. Historically, a financial crunch in higher education has resulted in most program areas being restricted to a similar extent, which reflects the fact that administrators have not adjusted expenditure levels to effectively deal with cyclical financial problems. This paper documents the severity of cyclical fluctuations in higher education finance and suggests ways to cope with these problems.

Business cycles and state governmental finances: Implications for higher education

A model with omitted resource constraints is suggested as an alternative to a risk aversion model for explaining economic behavior. This paper uses two standard mathematical programming models to further explore this issue. One model is a standard profit maximization linear programming model and the other is a risk averse quadratic programming model with part of the constraints deleted. Theoretical investigation of these models demonstrates that risk aversion can substitute for omitted resource constraints. A small empirical model is then solved under both formulations. With resource constraints deleted, positive risk aversion is necessary to obtain a similar enterprise organization as under profit maximization with complete constraints. These two solutions are then interpreted with the theoretical optimality conditions.