The economics of coupled farm subsidies under costly and imperfect enforcement

This study relaxes the assumption of perfect and costless policy enforcement found in traditional agricultural policy analysis and introduces enforcement costs and cheating into the economic analysis of output subsidies. Policy design and implementation is modeled in this paper as a sequential game between the regulator who decides on the level of intervention, an enforcement agency that determines the level of policy enforcement, and the farmer who makes the production and cheating decisions. Analytical results show that farmer compliance is not the natural outcome of self‐interest and complete deterrence of cheating is not economically efficient. The analysis also shows that enforcement costs and cheating change the welfare effects of output subsidies, the efficiency of the policy instrument in redistributing income, the level of government intervention that transfers a given surplus to agricultural producers, the socially optimal income redistribution, and the social welfare from intervention.     

Efficiency of the California electricity reserves market

We test the efficiency of the California electricity reserves market by examining systematic differences between its day- and hour-ahead prices. We uncover significant day-ahead premia, which we attribute to market design characteristics. On the demand side, the market design established a principal–agent relationship between the markets' buyers (principal) and their supervisory authority (agent). The agent had very limited incentives to shift reserve purchases to the lower priced hour-ahead markets. On the supply side, the market design raised substantial entry barriers by precluding purely speculative trading and by introducing a complicated code of conduct that induced uncertainty about which actions were subject to regulatory scrutiny. We use a high-dimensional vector moving average model to estimate the premia and conduct correct inferences. To obtain exact maximum likelihood estimates of the model, we develop a new EM algorithm that seamlessly incorporates missing data and applies directly to general moving average time series models. Our algorithm uses only analytical expressions: the Kalman filter and a fixed interval smoother in the E step and least squares-type regressions in the M step. Copyright © 2007 John Wiley & Sons, Ltd.     

On the determinants of credit rationing: Firm-level evidence from transition countries

Using survey data for firms from Eastern European transition economies we investigate the determinants of credit rationing. Our rationing definition incorporates firms whose loan application was rejected, but also ‘discouraged’ potential borrowers. We employ a bivariate probit with censoring, approach that accounts for the underlying selectivity since rationed firms are a subset of those without a loan. We include firm-specific attributes related to the alleviation of informational asymmetries, and therefore expected to affect credit rationing. We find that credit rationing depends on firm size, profitability, sales growth, ownership type, legal status, sectoral heterogeneity and the country-specific level of domestic credit.     

Terrorism risk concern in Europe

Motivated by the Bayesian framework, we explore terrorism risk perception differences across European countries. Perception variation is explained by the long-term terrorism countries face, while the cyclical part of terrorism does not seem to play any role.     

A note on trust in the ECB in the era of sovereign debt crisis

We employ Eurobarometer data on trust in the ECB, exploring whether trust is affected by sovereign credit rating episodes and the participation in economic adjustment programmes (EAPs) (bailout schemes). Controlling for several sociodemographic factors and macroeconomic conditions, we document a substantial negative impact on trust in ECB for countries experiencing downgrade episodes and participating in EAPs.     

The impact of protein increments on blending revenues in the Canadian wheat industry

Since 1994, progressively more protein grade increments have been added to existing standards for Canadian Western Red Spring (CWRS) wheat. This paper simulates the impact of additional protein increments on the farm value of grain and on revenues from optimal blending by using a linear programming model that maximizes blending revenues, given the protein distribution of No. 1 CWRS wheat for 1990–91 to 1992–93. Both analytical and empirical results show that the outcome depends on the pricing schedule, the protein distribution, and the placement of the new protein grade.     

The effects of fair trade on coffee growers: a framework and analysis

The world coffee market has undergone a significant transformation in the past couple of decades resulting in declining farm prices despite the fact that coffee demand has been strong and consumer prices have been soaring. Fair Trade organizations have tried to address this price imbalance by providing an alternative method of trading aimed at increasing the prices received by coffee growers. Despite their noble objectives, Fair Trade movements have had limited success in improving coffee growers’ welfare, however. This paper utilizes a novel framework of heterogeneous producers and relevant market information to provide insights on the market and welfare impacts of the Fair Trade regime when important idiosyncrasies of Fair Trade production and marketing are included in the analysis.     

Economic Effects of the Consumer‐oriented Genetically Modified Products in Markets with a Labelling Regime

This paper builds on the literature on the economic effects of the second‐generation, consumer‐oriented genetically modified products (GMPs). It analyses the market and welfare impacts of the introduction of these new products in markets, like the EU, that mandate the segregation and labelling of the first‐generation, producer‐oriented GMPs. Developing an empirically relevant model of heterogeneous consumers and producers, the study determines the effects of the consumer‐oriented GMPs on the markets of conventional, GM and organic products, and the welfare of consumers and agricultural producers. Analytical results indicate that the market effects of the new GMPs are case specific and depend on: (i) the consumer valuation of the quality‐enhancing attribute of the new GMP; (ii) the level of consumer aversion to GMOs; (iii) the strength of consumer preference for organic products; and (iv) the production costs and marketing margins in the different supply channels. The policy on the labelling of the first‐generation GMPs does not affect the impacts of the second‐generation GMPs on the quantities and market shares of the different products. However, it does affect their price effects and welfare implications. The introduction of consumer‐oriented GMPs under a mandatory labelling regime can result in losses for some GM consumers and all producers of the conventional product.     

Infringement of Intellectual Property Rights: Causes and Consequences

A game-theoretic model of heterogeneous producers is developed to examine the economic causes and consequences of intellectual property right (IPR) infringement in the context of a small open developing economy. Analytical results show that complete deterrence of IPR infringement is not always economically optimal. IPR infringement affects economic welfare and has important ramifications for the pricing and adoption of the new technology (biotechnology). The quantitative nature of results depends on the labeling regime. If the TRIPs agreement follows the custom of retaliatory sanctions under GATT, IPR enforcement will remain imperfect and innovators' ability to obtain value for their biotech traits will be limited.     

Market escape through exchange: home swap as a form of non-commercial hospitality

The purpose of this paper is to examine home swap – a form of non-commercial hospitality that has witnessed a great expansion in the last decade. In conjunction with prior writings on various subjects related to home swap, this study can be utilised in compiling a preliminary conceptualisation of home swapping, as a form of non-commercial hospitality, with its own characteristics. In particular this study identifies six dimensions of home swap, namely (a) escape of the market, (b) asymmetric exchanges, (c) need for trustiness, (d) use of a hospitality exchange network, (e) demand for domesticity and (f) quest to experience local authenticity. The results of this study are being utilised to construct a preliminary conceptualisation of home swapping as a distinct vacation alternative building on old virtues and using new technology.