Firm behaviour under uncertainty: a simple parametric model

In this paper, we model production technology in a state‐contingent framework. We assume that all the firms use the same stochastic technology, but they may have different risk attitudes and information sets, and ex post they may operate in different production environments. Firms maximise ex ante their preference function subject to a stochastic technology constraint; in other words, they are assumed to act rationally, thereby leaving no room for either technical or allocative inefficiency. We provide a simple parametric functional form to represent the state‐contingent technology. Using simple numerical examples, we illustrate how optimal input–output choices are dramatically affected when firms have different preferences and information sets. Thus, we show that the observed disparateness of production choices among different firms can actually be attributed to the stochastic nature of the decision environment.     

A Cost Approach to Economic Analysis Under State-Contingent Production Uncertainty

This article explores the economics of input decision under production uncertainty. The article develops a methodology to specify and estimate cost-minimizing input decisions under a state-contingent technology. The analysis is applied to time series data on U.S. agriculture. It finds strong empirical evidence that expected output alone does not provide an appropriate representation of production uncertainty. The results provide empirical support for an output-cubical technology. This indicates that an ex post analysis of stochastic technology appears appropriate. The analysis also provides evidence that the cost of facing production risk has declined in U.S. agriculture over the last few decades.     

The state‐contingent approach to production under uncertainty*

The central claim of this paper is that the state‐contingent approach provides the best way to think about all problems in the economics of uncertainty, including problems of consumer choice, the theory of the firm, and principal–agent relationships. This claim is illustrated by recent developments in, and applications of, the state‐contingent approach.     

Efficiency analysis under uncertainty: a simulation study

We model production technology in a state‐contingent framework assuming that the firms maximise ex ante their preference function subject to stochastic technology constraint; in other words, firms are assumed to act rationally. We show that rational producers who face the same stochastic technology can make significantly different production choices. Further, we develop an econometric methodology to estimate the risk‐neutral probabilities, efficiency scores and the parameters of stochastic technology when there are two states of nature and only one of which is observed. Finally, we simulate noiseless data based on our state‐contingent specification of technology. Our state‐contingent estimator recovers technology parameters and other economic quantities of interest without any error. But, when we apply conventional efficiency estimators to the simulated data, we obtain biased estimates of technical efficiency.     

Hidden action,risk aversion and variable fines in agri‐environmental schemes*

This note analyses the design of agri‐environmental schemes for risk‐averse producers whose input usage is only observable by costly monitoring. The scheme penalises producers in proportion to input use in excess of a quota. A striking result is that if the scheme is designed in such a way that producers always comply with the quota, risk aversion is not relevant in determining the level of input use.     

Farms’ technical inefficiencies in the presence of government programs*

We focus on determining the impacts of government programs on farms’ technical inefficiency levels. We use Kumbhakar's stochastic frontier model that accounts for both production risks and risk preferences. Our theoretical framework shows that decoupled government transfers are likely to increase (decrease) DARA (IARA) farmers’ production inefficiencies if variable inputs are risk decreasing. However, the impacts of decoupled payments cannot be anticipated if variable inputs are risk increasing. We use farm‐level data collected in Kansas to illustrate the model.     

On the economics of agricultural production*

Agriculture is in the business of using ecosystem services to produce food. Examining how agro‐ecosystems function provides useful insights into the economics of agriculture. Of special interest are the presence and nature of scale effects, complementarity effects and convexity effects in ecosystem functioning. Implications for agricultural productivity and the economics of agriculture are evaluated. At the farm level, this helps to better understand the current trend toward greater specialisation. Current challenges for agricultural contracts, markets and policy are explored.     

Predicting performance in undergraduate agricultural economics*

Entry to the Bachelor of Agricultural Economics (BAgrEc) program at the University of Sydney is consistently less competitive than that for the Bachelor of Economics (BEc) and Bachelor of Commerce (BComm) programs. Given that students in the BAgrEc program undertake units in common with students in the BEc and BComm programs, it is of interest to examine the importance of school performance and first year university in the determination of success at university. This paper takes information for nine cohorts of BAgrEc students and tests their performance in first‐year core subjects against the university entrance ranking, school English and mathematics marks, gender, and type of school. The paper then uses the same information to predict which student characteristics at entry level are likely to lead to students completing the degree program. The implications of the analysis are explored.     

Effect of yield and price risk on conversion from conventional to organic farming*

Although the benefits of organic farming are already well known, the conversion to organic farming does not proceed as the Dutch government expected. In order to investigate the conversion decisions of Dutch arable farms, a discrete stochastic dynamic utility‐efficient programming (DUEP) model is developed with special attention for yield and price risk of conventional, conversion and organic crops. The model maximizes the expected utility of the farmer depending on the farmer’s risk attitude. The DUEP model is an extension of a dynamic linear programming model that maximized the labour income of conversion from conventional to organic farming over a 10 year planning horizon. The DUEP model was used to model a typical farm for the central clay region in the Netherlands. The results show that for a risk‐neutral farmer it is optimal to convert to organic farming. However, for a more risk‐averse farmer it is only optimal to fully convert if policy incentives are applied such as taxes on pesticides or subsidies on conversion, or if the market for the organic products becomes more stable.     

Production risk and technical inefficiency in Russian agriculture

This study investigates production risk and technical inefficiencyas two possible sources of the production variability that characterisedRussian agriculture during the last decade. The empirical analysisis conducted using panel data from 1996 to 2001 on 443 largeagricultural enterprises from three regions in central, southernand Volga Russia. A production function specification accountingfor the effect of inputs on both risk and technical inefficiencyis found to describe production technologies of Russian farmsmore appropriately than the traditional stochastic frontierformulation.     

Production risk,risk aversion and the determination of risk attitudes among Spanish rice producers

Agricultural production is subject to risk and the attitudes of producers toward risk will influence input choices insofar as these affect production risk. Risk attitudes in turn may be affected by certain socioeconomic characteristics of producers. Using 2004 survey data from a cross‐section of 130 Spanish rice farms, we estimate risk‐aversion coefficients of farmers and investigate the influence of a series of socioeconomic variables on their risk attitudes. Our results show that farmers exhibit risk‐averse behavior and that risk attitudes are related to a series of socioeconomic characteristics. In particular, the belief that the farm will continue after the producer retires is found to increase the degree of risk aversion, while age is found to have nonlinear effects on risk aversion. Off‐farm income, especially from nonagricultural activities, is found to reduce risk aversion. Neither the educational level of the producer nor the presence of dependents on the household is found to have an effect on risk preferences. Regarding the production technology, we find that land, labor, and fitosanitary products are risk‐reducing inputs, whereas capital, seeds, and fertilizer all increase risk.     

Water rights for variable supplies*

The relative merits of different systems of property rights to allocate water among different extractive uses are evaluated for the case where variability of supply is important. Three systems of property rights are considered. In the first, variable supply is dealt with through the use of water entitlements defined as shares of the total quantity available. In the second, there are two types of water entitlements, one for water with a high security of supply and the other a lower security right for the residual supply. The third is a system of entitlements specified as state‐contingent claims. With zero transaction costs, all systems are efficient. In the realistic situation where transaction costs matter, the system based on state‐contingent claims is globally optimal, and the system with high‐security and lower security entitlements is preferable to the system with share entitlements.     

The economics of land fragmentation in the north of Vietnam*

Land fragmentation, where a single farm has a number of parcels of land, is a common feature of agriculture in many countries, especially in developing countries. In Vietnam, land fragmentation is common, especially in the north. For the whole country, there are about 75 million parcels of land, an average of seven to eight plots per farm household. Such fragmentation can be seen to have negative and positive benefits for farm households and the community generally. Comparative statics analysis and analysis of survey data have led to the conclusion that small‐sized farms are likely to be more fragmented, and that fragmentation had a negative impact on crop productivity and increased family labour use and other money expenses. Policies which allow the appropriate opportunity cost of labour to be reflected at the farm level may provide appropriate incentives to trigger farm size change and land consolidation. Policies which tip the benefits in favour of fewer and larger plots, such as strong and effective research and development, an active extension system and strong administrative management, may also lead to land consolidation.     

Financial comparisons of under‐vine management systems in four South Australian vineyard districts*

Conventional viticultural practice in Australia and elsewhere involves removal of under‐vine vegetation using herbicides or cultivation. Concerns over the long‐term effects of herbicides on soil health, evolution of resistant weeds and possible impacts on human health motivate the search for alternative weed management options. Industry‐supported trials on commercial vineyards in four South Australian regions investigated standard practices of straw mulch and bare earth created with herbicides, compared to under‐vine cover crops, focusing on soil health attributes (soil carbon, soil microbiological processes, etc.) and grape yields in 2016 and 2017. Measured yields with the Control (herbicide) treatment were combined with published district grape prices and yields over the 12‐year (2006–2017) period, defining multivariate distributions of gross revenues ($/ha). Assuming all treatments produce grapes of equal quality and price as the Control, our results showed median per‐hectare gross margins greater than the Control in the Barossa district, lower than Control in Riverland, and mixed results in Langhorne Creek and Eden Valley. Multi‐year risk profiles, based on decadal whole‐farm (50 ha) cash flows for each treatment, were calculated using Monte Carlo analysis, based on historical yield and price distributions. These risk profiles showed the under‐vine treatments may result in major differences in long‐term vineyard financial viability.     

森林经营者风险态度及其度量

风险态度影响个体对风险事件的认识及其对行动方案的选择,不同特性的个体,其风险态度应存在差异。在福建省建阳、建瓯、莆田、连城、上杭、武平、永安等地进行有关森林经营者风险态度问卷调查的基础上,分别利用"标准赌博"衡量法、调查问卷法和经济学试验这三种度量方法,对福建省三类森林经营者的风险态度分别进行度量的结果表明:除了"标准赌博"衡量法无法区分三类森林经营主体风险态度差异性外,调查问卷法和经济学试验均表明各个森林经营者风险态度存在着差异性。森林培育企业和森林培育专业户的风险态度属于风险厌恶,但企业的厌恶程度大于专业户,而兼业农户的风险态度则属于风险偏好。     

Integrating crop modelling and production economics to investigate multiple nutrient deficiencies and yield gaps

A method is described for integrating crop modelling and production economics to quantify optimum applications of multiple nutrients and yield gaps. The method is demonstrated for crop production in the high‐rainfall zone of southern Australia. Data from a biophysical crop model were used to overcome the persistent problem of inadequate experimental data. The Mitscherlich function was expanded to accommodate four variable inputs – nitrogen, phosphorus, potassium and sulphur – and the expansion path was used to determine the economic optimum application of all four nutrients. Modelling revealed the state‐contingent yield potential and the extent to which unrealised yield could be explained by profit‐maximising behaviour and risk‐aversion by growers. If growers and their advisors were guided by the methods described, they would be better equipped to assess crop nutrient demands and limitations, predict yield potential, additional profit and the risks associated with high input systems in a variable climate. If scientists were more aware of the extra profits and the risks involved (as well as the quantitative relationships between inputs and outputs) when thinking about what to produce and how to do so, they would be more circumspect about the net benefits to be obtained from closing yield gaps.     

Australasian environmental economics: contributions,conflicts and ‘cop‐outs’*

Australian and New Zealand environmental economists have played a significant role in the development of concepts and their application across three fields within their subdiscipline: non‐market valuation, institutional economics and bioeconomic modelling. These contributions have been spurred on by debates within and outside the discipline. Much of the controversy has centred on the validity of valuations generated through the application of stated preference methods such as contingent valuation. Suggestions to overcome some shortcomings in the work of environmental economists include the commissioning of a sequence of non‐market valuation studies to fill existing gaps to improve the potential for benefit transfer.     

基于柯布-道格拉斯生产函数的黑龙江省环境产业发展潜力研究

在分析黑龙江省环境产业发展现状的基础上，指出黑龙江省环境产业发展中存在的主要问题。并以柯布——道格拉斯生产函数为工具导出黑龙江省环境产业的资本产出弹性系数和劳动产出弹性系数，在此基础上计算各因素的贡献率。得出当黑龙江省环境产业进入成长期阶段时，应注重开辟环境产业发展的资金来源渠道，尽可能地加大政府、企业对环境产业的资金投入，促进环境产业潜在市场向现实市场的转化。并结合黑龙江省环境产业的实际提出具体的对策，以期为环境产业的发展提供理论指导。     

Downside risk in reservoir management

Downside risk, which refers to deviations below a threshold, is often important in water management decisions, especially in areas with large and skewed variations in precipitation patterns. In this paper, we present a model for a reservoir manager who is downside risk averse and who performs a dynamic allocation of irrigation water, taking into account the negative effects of droughts on farm profits and different environmental constraints. We analyse the water stock, flows and agricultural profits for alternative environmental restrictions and thresholds for irrigation levels and find that stricter environmental constraints increase total water supply and carryover stock, while higher penalty thresholds lead to their overall decrease. Furthermore, increasing penalty thresholds leads to a higher emphasis on avoiding shortages, at the expense of lower average profits.