Optimal Producer Behavior in the Presence of Area-Yield Crop Insurance

Optimal producer behavior in the presence of area-yield insurance is studied. The producer's optimal production and insurance choices are characterized. The effect of the provision of area-yield insurance on production patterns is studied, and sufficient conditions for the provision of area-yield insurance to increase the riskiness of the individual producer's decisions are derived. A separation result is derived for area-yield insurance contracts and stochastic technologies.     

Human Capital Theory and Education Policy in Australia

The human capital model is the basis of neo-classical analysis of labour markets, education and economic growth. However, education policy in Australia has been influenced by models based on screening theory and public choice theory which yield the policy implication that reductions in education spending are generally desirable. In this paper, the competing models, and the evidence supporting them, are surveyed. It is concluded that the human capital model is strongly supported by the available evidence. The predictions of screening models are generally not supported by empirical tests, except where they coincide with those of the human capital model. The main evidence supporting the public choice model, derived from the literature on educational production functions, is shown to be deficient. The principal policy conclusion of the paper is that the negative effects of recent cuts in education spending will outweigh any benefits achieved through reductions in public debt.     

Turning Water into Carbon: Carbon Sequestration and Water Flow in the Murray–Darling Basin

Large scale forest plantations in the Murray–Darling Basin are a possible carbon sequestration mechanism which may be adopted in response to the introduction of a carbon price. However, increased tree plantation will be associated with reduced inflows to river systems because of increased transpiration, interception and evaporation. This could have significant implications for regions vulnerable to drought. This study examines the interaction between carbon pricing, water pricing, and agricultural land use in the Murray–Darling Basin and its impact on water flow under current and climate change settings.     

Background risk in generalized expected utility theory

Summary. In this paper, it is shown that, for a wide range of risk-averse generalized expected utility preferences, independent risks are complementary, contrary to the results for expected utility preferences satisfying conditions such as proper and standard risk aversion. Received: August 10, 2001; revised version: June 18, 2002 RID="*" ID="*"I thank Simon Grant and an anonymous referee for helpful comments and criticism. This research was supported by an Australian Research Council Senior Fellowship and Australian Research Council Large Grant A79800678.     

Agricultural intensification, irrigation and the environment in South Asia: Issues and policy options

High population pressure and the rapid pace of human activity including urbanization, industrialization and other economic activities have led to a dwindling supply of arable land per capita and a process of agricultural intensification in South Asia. While this process has significantly increased food production to feed the growing population, it has also entailed considerable damage to the physical environment, including degradation and depletion of natural resources and unsustainable use of land and water resources. This paper employs the analytical tools of economic theory, environmental and ecological economics to model the impact of irrigation in South Asia. It underscores the need for an eclectic approach to policy responses stemming from private and common property rights theories, externality theory and sustainability theory with a view to environmentalizing agricultural development.     

The importance of ‘extremely unlikely’ events: tail risk and the costs of climate change

In assessing the risks associated with climate change, ‘tail risks’ (low‐probability extreme events) often play a much larger role than their probability alone might indicate. There are three main reasons for this: the linear relationship between sensitivity and warming; the convexity of the damage function; and the concavity of the utility function. Ignoring the upper tail of the distribution of possible outcomes will result in serious underestimates of the social cost of carbon dioxide (CO₂) emissions and of the socially optimal price for emissions.     

What Have We Learned from the Global Financial Crisis?

According to the policy ideas that have dominated the policy debate since the 1970s, the Global Financial Crisis and the subsequent slump in the United States and Europe should never have happened. The crisis provided sufficient evidence to reject the Efficient Markets Hypothesis, along with the dominant models in academic macroeconomics and policy claims such as the ‘trickle‐down’ hypothesis and the case for comprehensive privatisation. In reality, few of these lessons have been learned and much of the policy response to the crisis has been irrelevant or counter‐productive. As a result, we have learned some unflattering lessons about the economics profession, including policy‐makers, commentators, central bankers and academic economists.     

The Cost of Life Expectancy and the Implicit Social Valuation of Life

A new method of estimating the economic value of life is proposed. Using cross-country data, an equation is estimated to explain life expectancy as a function of real consumption of goods and services. The associated cost function for life expectancy in terms of the prices of specific goods and services is used to estimate the cost of a reduction in age-specific mortality rates sufficient to save the life of one person. The cost of saving a life in OECD countries is as much as 1000 times that in the poorest countries. Ethical implications are discussed.     

Social democracy and market reform in Australia and New Zealand

Social democratic governments in Australia and New Zealand adoptedpolicies of radical free-market reform, including financialderegulation, privatization, and public-sector reform in the1980s. Because of the absence of institutional obstacles togovernment action, reform was faster and more comprehensivein New Zealand than in Australia. The New Zealand reforms wereassociated with increasing inequality and generally poor economicoutcomes. There is nothing in the New Zealand experience tosupport the view that radical free-market economic policiesare consistent with social democratic welfare policies or withsocial democratic values of concern for the disadvantaged. TheAustralian reforms were less radical, and were accompanied bysome refurbishment of the welfare state. Economic performancedid not improve, as anticipated by advocates of reform, butwas considerably better than that of New Zealand.     

Event‐specific data envelopment models and efficiency analysis*

Most, if not all, production technologies are stochastic. This article demonstrates how data envelopment analysis (DEA) methods can be adapted to accommodate stochastic elements in a state‐contingent setting. Specifically, we show how observations on a random input, not under the control of the producer and not known at the time that variable input decisions are made, can be used to partition the state space in a fashion that permits DEA models to approximate an event‐specific production technology. The approach proposed in this article uses observed data on random inputs and is easy to implement. After developing the event‐specific DEA representation, we apply it to a data set for Western Australian barley production data. Our results highlight the need for acknowledging stochastic elements in efficiency analysis.