The shadow price of assimilative capacity in optimal flow pollution control

We present a model of optimal flow pollution control considering explicitly the dynamics of the corresponding assimilative capacity. We focus first on the degradation of this assimilative capacity triggered by pollution excesses and determine the intertemporal efficient pollution path, taking into account this ecological feedback. Our analysis shows that a minimum level of initial assimilative capacity is necessary to prevent its optimal extinction. We then allow for the restoration of assimilative capacity and characterize the conditions under which this option frees the optimal policy from the dependency on the initial conditions. In both cases our results call for environmental standards based on the shadow price of assimilative capacity that are stricter than the static optimum commonly used in flow pollution control.     

New perspectives on farm size and productivity

The farm size and productivity debate has been limited by the focus on land or labor productivity, generally showing respective productivity advantages to smaller or larger sized farms. Our purpose is to provide new perspectives on the debate by bringing together evidence from a set of novel case studies in both rich and poor countries. Common to them are the adoption of total factor productivity (TFP) as the comparative performance measure, and the reliance on panels of farm micro data. The present article presents a synthesis of findings from five case studies in (i) Malawi, Tanzania, and Uganda; (ii) Bangladesh; (iii) Brazil; (iv) Australia; and (v) the United States. The preponderance of evidence from these studies suggests that there is no single economically optimal agrarian structure; rather, it appears to evolve with the stage of economic development. Certain farm sizes face relative productivity advantages, such as small farms in Africa. But with economic and market growth, that smallholder advantage will likely attenuate, moving toward constant and eventually increasing returns to size. Yet, importantly, small farms may be quite dynamic, and need not be a drag on agricultural growth until perhaps well into the development process.     

Vertical differentiation via multi-tier geographical indications and the consumer perception of quality: The case of Chianti wines

We derive and estimate a model of demand for Geographical Indications allowing for subjective and heterogeneous quality perceptions, and study vertical differentiation based on multi-tier quality labels within the context of the strategy adopted by the Chianti Consortium. Quality perceptions and wine choices are elicited in an online experiment where the number of quality tiers is augmented incrementally in a between-subject design. The empirical model includes subjective quality perceptions as an (endogenous) explanatory variable, and unexplained heterogeneity in WTP for quality as a random parameter. We find that quality perceptions are endogenous to the labeling regime, and adding a high-quality label (Chianti Classico Gran Selezione) decreases the perceived quality of all other Chianti wines, but not the competitor wines. However, the market shared lost to perception restructuring is small compared to the benefits of increased vertical differentiation.     

Are USDA reports still news to changing crop markets?

This study investigates whether major USDA reports still provide important news to changing crop markets. The news component of each report, or market “surprise,” is measured as a difference between the USDA estimate and its private expectation in corn, soybeans, and wheat markets. Changes in the relevance of USDA information are assessed by examining changes in the magnitude of market surprises and shifts in the futures price reaction to these surprises, which isolates the impact of each report. The stable size of market surprises over time suggests that competition from alternative data sources has not reduced the news component of USDA crop reports. Increasing price reaction to most reports, including those facing competition from alternative information sources, suggests that value of public information may be enhanced in uncertain markets affected by structural changes.     

Consumers’ valuation for food traceability in China: Does trust matter?

Food safety is a very important topic in China. We investigate Chinese consumers’ preferences and willingness to pay (WTP) for food traceability using a choice experiment. Given that consumers’ trust in the food system may affect their preferences and WTP, we also assess the interaction between consumers’ trust in government’s supervision of food safety and food labels and consumers’ preferences for traceable food products. Using data collected from a choice experiment on Fuji apples in a face-to-face survey in six Chinese cities, the results show that (i) consumers are willing to pay for traceable food but their valuations can differ upon the degree of their trust in government’s supervision of food safety and food labels; (ii) consumers are willing to pay for traceability with strong evidence of preference heterogeneity; (iii) government is not the most trusted safety inspection and certificate authority as found in prior studies using animal food products in China.     

Universal food security program and nutritional intake: Evidence from the hunger prone KBK districts in Odisha

This article provides evidence on the role of consumer food subsidies in improving nutritional intake and diet quality by evaluating the expansion of the government food assistance program coverage in the hunger prone state of Odisha in India. In 8 districts of Odisha, popularly known as the Kalahandi-Balangir-Koraput (KBK) region which is notable for extreme poverty and starvation deaths, the government did away with the targeted food assistance program in 2008 and made the scheme universal. Using a Difference-in-Difference methodology over two repeated cross sectional household surveys, this article finds that the shift from targeted to a universal food security program in the KBK region of Odisha has led to an improvement in the household nutritional intake and diet quality. Further examination suggests that proportion of households consuming below the recommended dietary allowance of calorie, fats and protein has declined significantly in this region post the intervention.     

Commodity derivatives valuation with autoregressive and moving average components in the price dynamics

In this paper, we develop a continuous time factor model of commodity prices that allows for higher-order autoregressive and moving average components. We document the need for these components by analyzing the convenience yield’s time series dynamics. The model we propose is analytically tractable and allows us to derive closed-form pricing formulas for futures and options. Empirically, we estimate a parsimonious version of the general model for the crude oil futures market and demonstrate the model’s superior performance in pricing nearby futures contracts in- and out-of-sample. Most notably, the model substantially improves the pricing of long-horizon contracts with information from the short end of the futures curve.     

Learning or lock-in: Optimal technology policies to support mitigation

We investigate conditions that amplify market failures in energy innovations, and suggest optimal policy instruments to address them. Using an intertemporal general equilibrium model we show that ‘small’ market imperfections may trigger a several decades lasting dominance of an incumbent energy technology over a dynamically more efficient competitor, given that the technologies are very good substitutes. Such a ‘lock-in’ into an inferior technology causes significantly higher welfare losses than market failure alone, notably under ambitious mitigation targets. More than other innovative industries, energy markets are prone to these lock-ins because electricity from different technologies is an almost perfect substitute. To guide government intervention, we compare welfare-maximizing technology policies including subsidies, quotas, and taxes with regard to their efficiency, effectivity, and robustness. Technology quotas and feed-in-tariffs turn out to be only insignificantly less efficient than first-best subsidies and seem to be more robust against small perturbations.     

No Mangoes in the Tundra: Spatial Heterogeneity in Agricultural Productivity Analysis*

In line with the wider macro productivity literature existing studies of agricultural production largely neglect technology heterogeneity, variable time‐series properties and the potential for heterogeneous but correlated total factor productivity (TFP) across countries. Our empirical approach accommodates these difficulties and seeks to model the nature of the cross‐section dependence in a sample of 128 countries (1961–2002). Our results suggest that agro‐climatic environment drives similarity in TFP evolution across countries with heterogeneous production technology. This provides a possible explanation for the failure of technology transfer from advanced countries of the temperate ‘North’ to arid and/or equatorial developing countries of the ‘South’.     

Optimal regime switching and threshold effects

We consider a general control problem with two types of optimal regime switch. The first one concerns technological and/or institutional regimes indexed by a finite number of discrete parameter values, and the second features regimes relying on given threshold values for given state variables. We propose a general optimal control framework allowing to derive the first-order optimality conditions and in particular to characterize the geometry of the shadow prices at optimal switching times (if any). We apply this new optimal control material to address the problem of the optimal management of natural resources under ecological irreversibility, and with the possibility to switch to a backstop technology.