Optimal Two‐Part Pricing in a Carbon Offset Market: A Comparison of Organizational Types

This article examines the optimal two‐part pricing by an intermediary in a carbon offset market. In addition to creating a framework for analyzing carbon offset pricing, this article makes two contributions to the theoretical literature. First, we provide an in‐depth examination of the roles played by the upstream inframarginal supply and participation elasticities and the downstream demand elasticity in determining the optimal two‐part pricing strategy. Second, we compare the pricing decisions of three different organizational types: a for‐profit firm, a public agency, and a producer association. The producer association problem, which has received little attention in the literature, yields counterintuitive results because a producer association must simultaneously reduce output and distribute all profits back to its members.     

Information-rich wheat markets in the early days of COVID-19

This paper uses the information implicit in commodity futures and options prices to infer market beliefs about the impact of early-stages COVID-19 on commodity market fundamentals. The particular commodity examined is soft red winter (SRW) wheat, and the timeframe is early February to late March 2020. The analysis highlights various adjustments in the cash and futures price of SRW wheat in light of surging short-run demand from consumer hoarding of staple food products, and a weakening long-run market from growing wheat stocks and an emerging global recession. This split is causing the forward curve to flatten and basis levels to invert. The change over time in the price of options on wheat futures reveals increased price volatility in response to growing uncertainty about the COVID-19 impacts. Similarly, changes in the skewness of the option's volatility smile illustrate a shift in traders’ perception about risk in the right versus left tail of the price distribution.     

Constrained Efficient Contracts for Area Yield Crop Insurance

With area yield crop insurance, indemnification occurs when area yield falls below a yield trigger that is chosen by the producer. The maximum value for this yield trigger is generally restricted (e.g., 80% of the long term area average yield). The impact of this trigger constraint on the optimal design of an area yield insurance contract is examined. Within the constrained efficient contract, indemnities consist of both a lump sum payment and a payment that is proportional to the yield shortfall. Because lump sum payments may not be feasible to implement, efficiency-enhancing modifications to standard contracts are also proposed.     

Agri‐Environmental Regulations,Policies, and Programs

The literature on the interface between agriculture and the environment is highly diverse. This paper organizes this literature into three categories: regulation; adoption of environmental best management practices (BMPs) by farmers; and conservation programs. Within each category, the main research questions are set forth. After reviewing select papers, suggestions for future research are discussed. Academic research in this area has been impressive, but many issues and research questions remain unanswered. La littérature sur la corrélation entre l’agriculture et l’environnement est très diversifiée. Dans le présent article, nous avons divisé l’ensemble de cette littérature en trois catégories: la réglementation, l’adoption des meilleures pratiques de gestion environnementale de la part des agriculteurs et les programmes de conservation. Pour chaque catégorie, les principales questions de recherche ont étéénoncées. Une fois l’analyse des articles choisis terminée, nous avons examiné les suggestions en matière de recherche future. Bien que la recherche universitaire effectuée sur le sujet soit impressionnante, de nombreux problèmes et de nombreuses questions de recherche demeurent sans réponse.     

Farm bankruptcy risk as a link between direct payments and agricultural investment

The European Union is increasingly relying on direct paymentsto support farm incomes. Recent research has shown that a directpayment may increase production and investment by risk-aversefarmers via a link between wealth, risk aversion and decisionmaking. This paper shows that, even in the absence of risk aversion,a direct payment may stimulate farm investment. With lendersusing a standard insolvency rule for determining bankruptcy,the direct payment raises the expected value of marginal investmentbecause it reduces the risk of bankruptcy over the farmer'soperating time horizon. The investment response to the directpayment is larger for a farmer with an intermediate versus lowor high level of equity, and for a farmer with a long versusshort-time horizon.     

The Economics of Crop Hail Insurance

The demand for crop hail insurance is examined in both static and dynamic models and both with and without all-risk crop insurance. Contrary to general results on optimal insurance with background risk, crop revenue uncertainty induces the farmer to decrease rather than increase coverage. The underinsurance results are strengthened when farmers are able to dynamically update their insurance portfolio as information about the value of the crop is revealed over time. When hail insurance is purchased along with all-risk crop insurance, two alternative approaches are examined and their efficiency properties compared.
Nous examinons la demande d'assurance-grêle au moyen, à lafois, de modèles statiques et de modèles dynamiques, chacun intégré ou non à une assurance tout-risque. Contrairement à ce qu'on observe généralement pour le niveau d'assurance optimal établi enprésence d'un risque sous-jacent, l'incertitude quant au rendement des cultures attendu incite l'exploitant agricole à réduire, plutôt qu'à augmenter, sa couverture. Les résultats de cette sous-assurance sont améliorés lorsque l'exploitant est capable d'actualiser régulièrement son portefeuille d'assurance à mesure que la valeur finale de la récolte se précise. Dans le cas de l'assurance-grêle achetée dans le cadre d'une assurance-récolte tout-risque, nous comparons deux options quant à leur possibilité de rendement économique.     

Option Contracts as a Solution to the Holdup Problem in Agri-food Markets

It is well known that incomplete contracts, together with asset specific investment, can result in investment holdup because of opportunistic behavior by either the commodity producer or the processor. In recent years, several papers have shown how contracts which explicitly account for ex post renegotiation can reduce or eliminate the holdup problem. In one particularly promising type of analysis, a simple option contract is awarded to the upstream producer. In this paper, it is shown that if the source of risk is with respect to the value of the processed commodity, then a producer option contract does not work but a processor option contract does work to eliminate the holdup problem. A simple example is used to illustrate the main findings.