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AAEA Sessions

with Abstracts

Jan 3, 2015

Risk Mitigation Tools in Agriculture: Crop Insurance and Contract Farming
Jan 3, 2015, 8:00 am
Westin Copley, St. George D

Presiding: David Zilberman (University of California-Berkeley)
  • Using Prospect Theory to Explain Anomalous Crop Insurance Decisions
    Bruce Babcock (Iowa State University)

    Expected utility theory and risk aversion are the standard paradigm used to explain crop insurance decisions. However, this paradigm cannot explain why farmers do not either maximize expected returns to insurance or why they do not maximize coverage levels. The extent to which loss aversion and behavioral weighting functions of probabilities can explain this anomalous behavior will be explored. Using recent developments in cumulative prospect theory, this paper formulates a farmer's crop insurance decisions problem by introducing weighting functions of loss probabilities. A key feature of the model is that the objective cumulative yield loss probability distribution is transformed into farmer's subjective probability assessment. A direct consequence of the model is that farmers may overweight unlikely events and adjust their crop insurance decisions. The novelty of the paper comes from the use of advanced risk behavior model in crop insurance context.
  • The Effects of Crop Insurance on Specialty Crop Supply
    Daniel A. Sumner (University of California-Davis)
    Hyunok Lee (University of California-Davis)

    By 2011, more than 80 specialty crops are covered under crop insurance and the total liabilities for these crops are getting close to $12 billion. Previous literature finds that crop insurance has a negative impact on the price of crops for various specialty crops in California. In this paper, we develop conceptual and empirical models to consider how the spread of crop insurance is a affecting specialty crop production across states and counties in the United States. The new knowledge generated from the paper is twofold: first, we will formalize the discussion of supply response to crop insurance by a theoretic framework; second, many versions of farm bill generate considerably large variation of crop insurance policies across counties and states, which will allow us to estimate the causal impact of crop insurance on a series of production decisions.
  • The Pricing of Community Supported Agriculture (CSA) Contracts: Evidence from New England
    Thomas W. Sproul (University of Rhode Island)
    Jaclyn D. Kropp (University of Florida)

    This study develops a model of the risk-management features of CSA and CSF-style production contracts, and predicts when unfavorable substitutions will be most severe. Using surveys of local food and fisheries in Florida and in New England, we apply the model to identify cases where efficiency and adoption could be improved by updating contracts in line with local consumer preferences. The contribution of this paper to the literature is that we discuss a contractual relationship in the context of community supported agriculture and we extend the idea to fishery contexts as well.
  • How Does Crop Insurance Purchase Affect Marketing Contracts Participation
    Xiaoxue Du (University of California-Berkeley)
    Jennifer Ifft (Cornell University)
    Liang Lu (University of California-Berkeley)
    David Zilberman (University of California-Berkeley)

    Contract farming and crop insurance are important ways for farmers to mitigate risks in modern U.S. agriculture. We combine an agency theory framework of Ligon (2003)and expected utility maximization model of Babcock (2012) to show that a lower crop insurance premium rate could induce higher compensation for farmers from integrators. This result indicates that the use of one risk management tool may not crowd out the use of the other. We use various data sources to test our theoretic predictions. The empirical results show that, in peanut sector, farms with higher crop insurance expenditure will have more value of production under marketing contract as well. This paper, to our knowledge, is the first one that combines contract models and crop insurance models to discuss the theoretical implications of the interaction between the two risk management tools.

The Nature and Importance of Commodity and Relational Good Exchanges
Jan 3, 2015, 10:15 am
Westin Copley, St. George D

Presiding: Scott Swinton (Michigan State University)
Discussant: Norbert Wilson (Auburn University)

  • Commodity and Relational Good Exchanges and Commodification and Decommodification
    Lindon Robison (Michigan State University
    Ken Frank (Michigan State University)
    Jeffrey Oliver (Michigan State University)

    Economic exchange theory focuses on commodity/commodity exchanges. However, much of what we exchange is relational goods whose values are created in relationships. Failing to distinguish between commodities and relationships can lead to ineffective policies which are designed to encourage/discourage certain types of exchanges. This paper distinguishes between commodities and defines three kinds of relational goods: social capital, socio-emotional goods, and attachment value goods. Then this paper describes the processes in which commodities are converted into relational goods (decommodification) and relational goods are converted into commodities (commodification). Continuing, we describe the conditions required for and the benefits and costs associated with commodity and relational good exchanges. Finally, we describe some criteria for discouraging (encouraging) some kinds of commodity and relational good exchanges.
  • The Hidden Cost of Regulation: Emotional Responses to Command and Control
    David Just (Cornell University)
    Andrew Hanks (Ohio State University)

    In economic models of behavior consumers are assumed to behave rationally and the goods and services they purchase are generally assumed to be valued based on quality and other externally identifiable attributes. Following this same line of thinking, these models predict that consumers respond to taxes on these goods as price increases and substitute towards other goods accordingly. Yet research in the behavioral sciences indicates that consumers don't consider items they own as easily transferrable commodities but as relational goods that are an integral part of their life. Alternatively, regulators often operate under the assumption that goods are commodities and are interchangeable and of no special internal value. This can lead the regulator to ignore potential emotional responses to policy changes. Evidence from laboratory experiments indicates that individuals respond emotionally to policies that regulate everyday goods or services in ways that can create hidden costs and inefficiencies in the policy. Consumers might, for example, react to Bloomberg's soda ban by consuming more soda or to recycling messages by dropping more garbage at their feet. Response to changing healthcare policy may not simply be a calculation of the net costs and benefits, but an emotional response to a forced change. Evidence in school lunchrooms suggests that students rebel against school lunch nutrition regulations by wasting more food or bringing junk food from home. While regulators might consider the goods they regulate as items that are easily transferable in a market setting, individuals might consider them as part of their lives and strongly resist policies that restrict access. As a result, policies that pay some attention to persuasion might be a more effective policy measures than traditional economic tools that limit choice sets.
  • Selfishness and Social Capital Motives and Recycling Behavior
    Satish Joshi (Michigan State University)
    Shaun Jin (Michigan State University)
    Lindon Robison (Michigan State University)
    Richard Winder (Michigan State Bar Foundation)
    Robert Shupp (Michigan State University)

    Prior research on recycling behavior has focused on how policy variables (such as variable pricing, curbside collection), demographic factors (age, gender, education) and attitudes (towards recycling and other environmental activities), affect recycling rates and frequency. This article draws on the emerging social capital theory and hypothesizes that social capital motives such as self-respect, goodwill, belongingness, and caring are significant drivers of recycling behavior. The hypotheses are empirically tested using survey data from 782 occupants of 66 buildings on a University campus. Results support the hypothesized relations and indicate that variations in recycling rates at both individual and building level can be explained by variations in social capital motives even after controlling for traditional policy, demographic and economic factors. The results also uncover some predictable relationships between the social capital motives and demographic characteristics.
Immigration, Agricultural Employment, and Trade: International Perspectives
Jan 3, 2015, 12:30 pm
Westin Copley, St. George D

Presiding: Mary Ahearn (USDA Economic Research Service (retired))
  • Changes in Migration Patterns of Agricultural Workers in the United States: Implications for Production and Trade
    Ivan Kandilov (North Carolina State University)

    Migration patterns of agricultural workers in the U.S., large share of whom are undocumented, have changed in the last decade. We investigate a number of reasons behind this phenomenon – for example, the changing demographic composition of the farm labor force and the more restrictive labor and immigration policies adopted across some states. The change in migration patterns has led to a shortage of farm labor in some geographic areas, especially in high-value crops (fruits and vegetables). This has led to a production shift towards field crops and it has a potential to alter existing U.S. agricultural trade patterns.
  • “Migrant” Workers in Israeli Agriculture and Export Expansion
    Ayal Kimhi (Hebrew University of Jerusalem)

    Migration patterns in Israeli agriculture went through different phases. Labor was flowing into farming until the country became self-sufficient in food. After that, self-employed farmers exited gradually while production continued to increase towards export markets. This process intensified considerably when foreign labor was allowed to enter the country. This paper shows that the availability of foreign labor has led to an increase in the production and export of labor-intensive horticultural products. This was accompanied by a continued process of exit of self-employed from agriculture and a higher reliance on hired labor. Since the 1990s, the fraction of hired labor in total farm labor doubled from 40% to 80%, with foreign workers doing manual tasks and Israeli hired employees doing managerial and professional tasks. The paper concludes that allowing farmers to employ foreign workers has led to an irreversible structural change in Israeli agriculture. Surrendering to the popular demand to reduce the number of foreign workers for the benefit of local workers will actually reduce the demand for local farm workers.
  • Urbanization’s Effect on Water, Land and Labor and China’s Agricultural Trade
    Jikun Huang (Chinese Academy of Sciences)
    Scott Rozelle (Stanford University)

    As China’s economy begins the shift from middle to high income, the leadership is pushing pro-urbanization policies as a way to support the rapid development of the previous three decades. Policies are targeted at facilitating the transfer of land, water and labor from rural/agriculture to the city. At the same time as these resource transfers are expected to occur, food security concerns are rising. Since 2008, agricultural imports have exceeded exports. These two often in-conflict policy directions—urbanization and food security—are becoming the focus of concern to top policymakers. The overall goal of this study is to systematically evaluate the impact of urbanization in China on national food security. To meet this goal, we will have three specific objectives. First, we will assess the supply-side factors associated with urbanization that will affect China’s future production by examining the effect of urbanization (through water, land and labor) on the supply of agricultural production and trade. Second, we will examine the demand-side factors. Finally, we put it all together and assess the effect of urbanization on trade and food security. In this particular presentation, we will focus on the labor aspects of this issue.
  • Migration, Youth, and Agricultural Productivity in Ethiopia
    Alan de Brauw (International Food Policy Research Institute)

    This paper explores the relationship between migration and agricultural productivity in Ethiopia. Given that there are fairly significant returns to either rural-urban or international migration for labor in Ethiopia, it could be that credit constraints hindering migration start up are an unexplored constraint against migration. The paper primarily uses the Ethiopia Rural Household Survey panel and a migrant listing exercise completed after the 2009 survey round to explore whether past agricultural productivity (e.g. in 2004) explains later migration. It finds that among young migrants, there appears to be a positive, significant relationship between productivity and households sending out a migrant. This relationship holds even when proxies for credit are included in the model. However, the magnitude of this effect is small. The paper also considers feedback effects from migration to later agricultural productivity; this correlation is weaker suggesting that migration does not have negative productivity impacts.

Jan 4, 2015

The 2014 Farm Bill: An Economic Post Mortem
Jan 4, 2015, 8:00 am
Westin Copley, St. George D
residing: Brian Wright (University of California-Berkeley)
Discussants: Brian Wright (University of California-Berkeley)

  • The Political Economy of the 2014 Farm Bill
    David Orden (Virginia Tech University and IFPRI)
    Carl Zulauf (Ohio State University)

    The authors will examine the political economy environment in which the 2014 Farm Bill was developed, the structure of the new programs, and the medium and long term implications of the interest group forces that led to the structure of the new programs included in the bill and the termination of other programs such as direct payments.
  • The Potential Budgetary Costs and WTO Implications of the New Farm Bill
    Joseph W. Glauber (USDA Office of the Chief Economist)
    Patrick Westhoff (University of Missouri)

    This paper will provide stochastic estimates of the budgetary costs of the 2014 farm bill. The authors use those estimates to explore whether or not the new farm bill creates challenges for the United States in meeting its current WTO Aggregate Measure of Support (AMS) and other commitments. In light of these estimates the authors will also assess the potential effects of the 2014 farm bill on the US position in future WT negotiations.
  • The Economic Welfare Impacts of the New Agricultural Insurance and Shallow Loss Programs
    Vincent H. Smith (Montana State University)
    Anton Bekkerman (Montana State University)
    Myles J. Watts (Montana State University)

    The authors will examine the potential economic welfare and environmental consequences of the new Supplementary Coverage Option (SCO) shallow loss insurance instrument and other shallow loss programs such as the Agricultural Risk Coverage (ARC) program, taking careful account of these programs’ interactions with current agricultural insurance programs.
  • US Research and Development Trajectories: Implications for Agricultural Productivity
    Philip Pardey (University of Minnesota)
    Jason Beddow (University of Minnesota)
    Connie Chan-Kang (University of Minnesota)

    The author will examine the current and likely future path of public funding for agricultural research in the context of the 2014 farm bill, both with respect to funding levels and how agricultural research is likely to be carried out. An assessment will be made of the implications for long run growth in agricultural productivity in the US and spillover effects in other countries.

Heterogeneity and Trade: Applications to the Food and Agricultural Sector
Jan 4, 2015, 10:15 am
Westin Copley, St. George D
: Terry Roe (University of Minnesota)
Discussants: Ivan Kandilov (North Carolina State University)

  • Asia-Pacific Integration with China versus the United States: Examining Trade Patterns under Heterogeneous Agricultural Sectors
    Kari Heerman (USDA Economic Research Service)
    Shawn Arita (USDA Economic Research Service)
    Munisamy Gopinath (USDA Economic Research Service)

    This paper compares the impacts on global agricultural trade and production patterns of two proposed efforts at Asia-Pacific regional economic integration: the Trans-Pacific Partnership, which includes the United states but excludes China, and the Regional Comprehensive Economic Partnership, which includes China but excludes the United States. The analysis uses a model drawing on a quantitative general equilibrium framework (Heerman, 2013) in which producers of agricultural products have access to technology with heterogeneous productivity linked to the exporting country’s land and climate characteristics. In addition, the model features heterogeneity in bilateral trade costs across products. This allows for analysis of changes in the dispersion of trade costs within the agricultural sector without requiring a separate parameterization for individual products or sub-sectors. This feature is particularly important for capturing the qualitative differences between Asia-Pacific agricultural trade liberalization with China versus the United States. Importantly, the model generates a nuanced picture of how changes in the structure of trade costs under these two scenarios may alter flows of agricultural products both within and outside the region.
  • Import Penetration, Intermediate Inputs and Firms’ Performance in the Food Industry
    Alessandro Olper (University of Milano)
    Danielle Curzi (University of Milano)
    Valentina Raimondi (University of Milano)

    Recent developments in trade theory with firm heterogeneity provide several new testable hypotheses about the relationship between firms’ characteristics and patterns of international trade (Melitz and Redding, 2014). Among these, the effect of trade liberalization on firm and industry productivity growth represents the most widely studied relationship. Yet, few studies have formally tested this relationship in the context of the food industry (e.g. Ruan and Gopinath, 2008; Olper et al., 2013) and, to the best of our knowledge, none have used firm-level data. The current paper fills this gap by studying the effect of trade liberalization on firm productivity growth using firm-level data for a selection of EU countries, over the period 2004-13. The relationship between trade liberalization and firm performance is investigated by focusing on import penetration of both final and intermediate goods. This is important as in the last twenty years, global trade growth in intermediate inputs has accounted for the bulk of world trade, and this is also true in the case of agricultural and food trade, at least when intra-EU trade is taken into account. Thus, in addition to the standard competitive growth effect induced by trade integration on firm performance, whether other channels are at work is also investigated. In particular, the analysis focuses on the relation between firms’ performance and both horizontal and vertical import penetration to test whether the process of international specialization raises firms’ productivity.
  • Food Processing Firms, Input Quality Upgrading and Trade
    Eric Tseng (Ohio State University)
    Ian Sheldon (Ohio State University)

    This paper extends the heterogeneous firms and trade literature by integrating quality of inputs and outputs in a food and agricultural setting. Recently, Sexton (2013) has suggested that intermediate input quality is important in food processing firms’ output quality and pricing decisions. The results in this paper indicate that labor quality cannot be ignored in analyzing the production decision-making of firms. Labor quality is integrated into the model in two ways: first, it affects the production of the final good, in that higher quality labor lowers the marginal cost of producing the final good. Additionally, labor quality is endogenously chosen in the quality choice of the final good, alongside intermediate input quality. By choosing these elements, firms become differentiated on a vertical (quality) level not only because of their productivity draw and input quality choice, but also because of their labor quality choice. Understanding the mechanics behind firms’ quality choices sheds light on how food processing firms make their production choices and how increased international economic integration affects those choices.

Food Environment, Food Choices and Nutrition Outcomes – An International Perspective
Jan 4, 2015, 2:30 pm
Westin Copley, St. George D

Presiding: Parke Wilde (Tufts University)

  • Convenience Stores and Childhood Obesity: A Panel Instrumental Variable Approach
    Di Zeng (University of Arkansas)
    Michael Thomsen (University of Arkansas)
    Rodolfo Nayga (University of Arkansas)
    Heather Rouse (University of Arkansas for Medical Sciences)

    The effects of the local food environment on childhood obesity are receiving increasing attention, with most studies focusing on fast-food restaurants and grocery stores. However, little is known about possible effects of convenience stores on childhood obesity, a major format of food outlet in both urban and rural areas. Many convenience stores are approved to accept Supplemental Nutrition Assistance Program benefits and so may be important sources of foods for lower-income families, especially when access to supermarkets is limited. This study helps to better understand the role of convenience stores through an empirical assessment of the effects of neighborhood convenience stores on childhood obesity. It uses a unique statewide panel data set of measured BMI screenings for Arkansas public schoolchildren (2004-2010) and geo-referenced location data of food stores and restaurants. We consider the choice nature of convenience-store location decisions and account for possible endogeneity using an instrumental variable approach. One possible instrument that will be used is proximity of child’s residence to nearest highway. To appropriately differentiate possible confounding effects, we also control for other food store formats such as grocery stores and fast food restaurants. We also run a natural experiment based on new openings of convenience stores during the 2004-2010 period. Given their ubiquity, the effect of convenience stores on childhood obesity is policy relevant. Moreover, understanding this effect is important to the design and implementation of interventions aimed at reducing childhood obesity.

  • Diet Deterioration and Food Retail Structure: Why Are Italians Eating Less Fruits and Vegetables?
    Alessandro Bonanno (Wageningen University and Pennsylvania State University)
    Elena Castellari (University of Connecticut and Università Cattolica del Sacro Cuore, Piacenza)
    Paolo Sckokai (Universita Cattolica del Sacro Cuore, Piacenza)
    Francesco Bimbo (Wageningen University and Università degli Studi di Foggia)

    Fruits and vegetables (FV) consumption in Italy is declining dramatically. This decrease is particularly marked in southern regions, where the share of consumers declaring to consume five portions of FVs daily in the period 2005-2012 has declined by amounts as high as – 46.9%.  As in Italy consumption of FV is more marked in the North than in the South, and food retailers’ presence shows a dichotomy where northern areas have larger and more numerous stores than southern ones, a relationship between food retail structure disparities and FVs consumption in Italy may exist.  Our goal is to assess whether ease of access and increased service creates a conducive environment for the consumption of FV among Italians. We use a 7-year database of food stores’ location and characteristics in Italian regions from Nielsen, matched with individual-level number of daily portions of FV consumed from the Multipurpose Household Survey by the Italian Institute of Statistics. Differently than other studies using number of stores to capture access, we use more refined measures of food retail structure such as selling area, the number of in-store scales, and the length of refrigerated aisles. The model is estimated via a Two-Stage Residual Inclusion ordered probit estimator to correct for the endogeneity of food retail structure, and an identification strategy based on variation in pro-business climate across regions captured by voting results in regional election.

  • Does Healthy Food Access Matter in a French Urban Setting? – The Role of Food Retail Structure
    France Caillavet (INRA-ALISS)
    Gayaneh Kyureghian (Korea University)
    Rodolfo Nayga (University of Arkansas)

    The effects of the availability of separate types of food retail outlets on the choice of certain foods have been investigated extensively. This practice received a fair amount of criticism–just as it is hard to single out any food item that encompasses the dietary quality; it is equally hard to single out any particular type of food retail outlet that represents the food environment as a whole. Therefore, the overall impact of the food retail environment on food and diet choice remains unclear. This paper seeks to estimate the impact of a food retail ‘profile’ rather than separate type of retailers, on the food and diet choice. We use a health survey of Paris region, matched with information on food outlets at the local level, to model the frequency of fruit and vegetable purchases. Due to data restrictions we address only the first part of the problem–estimate the impact of the retail food availability on the frequency of fruit and vegetable purchase. Our hypothesis is that the food retail environment or profile in each reference area–combinations of numbers of supermarkets and grocery stores, hypermarkets, hard discount, and specialty stores, is a significant driver of the frequency of fruit and vegetable purchases. Our empirical strategy employs ordered probit. The food availability or profile variable will be constructed by using principal component analysis. To account for the possible endogeneity of the food environment variable, we will use instrumental variable estimation. For identification we will instrument the store availability by the number of commuters in the metro or train station closest to the respondents’ residence. Revealing the associations between fruit and vegetable consumption and retail profile would enable economic interpretation and assessment of the tradeoffs among different types of retail outlets, and therefore offer a richer framework for targeted policy design and analysis.

  • Retailers’ Promotions: What Role Do They Play In Household Food Purchases In Scotland?
    Cesar Revoredo-Giha (Scotland’s Rural College)
    Faical Akaichi (Scotland’s Rural College)
    Philip Leat (Scotland’s Rural College)

    Scotland has one of the worst overweight and obesity records within the OECD countries, with 68% of males and 62% of females being overweight or obese. These conditions are also prevalent in children where over 15% of boys and almost 13% of girls under the age of 16 are obese and 30% of children are overweight. A poor diet fostered by a rapid increase in the supply of affordable, processed food has been mentioned as one of the major contributors to obesity. Associated to increases in affordability are the promotions used by retailers with such foods. Their impact is controversial because, on the one hand, retail promotions (e.g., price promotions, vouchers, in-store product placement, direct mail marketing and multiple-buy offers) have been pointed to as a key factor in expanding the expenditure on caloric rich processed foods; and on the other hand, promotions are also used by retailers for selling fruit and vegetables. Most of the studies on the effects of promotions have been based on a single or reduced number of products. Thus, the purpose of this paper is to analyse the overall effect of promotions on the Scottish diet, i.e., considering all food categories. This is achieved by analysing a representative scanner panel dataset for Scotland, which contains information at the household level about prices paid, type of promotion, the quantities purchased, as well as socioeconomic and demographic characteristics of the households including level of deprivation of the area where they live. In addition, as the dataset covers the period 2006-12, i.e., it includes a recessionary period during which retailers were trying all types of promotions to maintain sales and households were becoming more price-conscious as they endeavoured to cope with difficult budgetary decisions when shopping.