t iJJniversity of California, Berkeley. J^ept. of agricultural and resource economics^ JVorkiflg Paper ^ Working Paper No. 213 PRINCIPLES OF POLICY I^DDELING IN AGRICULTURE by Gordon C. Rausser *NUINf and Richard E. Just FOUNDATION AUH1CULTURAL ECONOMICS LIBRARY California Agricultural Experiment Giannini foundation of Agricultural September 1981 Station Economics

The joint implications for welfare measurement in three recent literatures are considered for broadening the scope of welfare economics: the behavioral welfare economics literature, the structural versus reduced form debate in econometrics, and the use of sufficient statistics for characterizing behavior. Real world data as well as experimentation reflect a wide variety of so-called anomalous behavioral criteria. Sufficient statistics permit aggregation under heterogeneous behavioral criteria to facilitate meaningful economic welfare analysis. Atheoretic reduced form and traditional treatment-effect econometrics do not support economic welfare analysis, but marginal treatment-effect econometrics is useful for a certain type of policy problems. More generally, however, estimation of sufficient statistics offers possibilities using theory-based reduced form econometrics. Sufficient statistics are further suggested for general equilibrium welfare measurement. Under certain assumptions, robust concepts of economic welfare measurement emerge that rationalize the terminology and concepts of traditional welfare economics, although with a much broader conceptual basis. JEL classifications: D12, D22, D60, D80

This study develops a model to study household energy use behavior that can impose common preferences for feasible demand estimation with multiple discrete technology choices and multiple continuous energy consumption uses. The model imposes fixed proportions production and additivity of uses for plausible estimation feasibility while adopting a second-order translog flexible functional form to focus on flexibility in identification of consumer preferences that determine interactions among energy uses and between short-run and long-run choices. Using a unique household-level dataset from California, the model is applied to estimate short-run household demand for electricity and natural gas and the long-run technology choices with respect to clothes washing, water heating, space heating, and clothes drying. The estimation results support commonality of underlying preferences except in one case that is explained by an unavailable variable.

This paper takes a new approach to a classical question about the relationship of monopolistic behavior to the social optimum when advertising is admitted. By characterizing conditions in terms of consumer preferences and using an uncommon approach to comparative static analysis, we derive a general result that produces a dozen special cases of interest. We also show that a plausible preference specification is general enough to generate each of these cases. The specification is amenable to estimation and inference with common data, although empirical application is beyond the scope of this paper. Results are derived assuming that advertising follows the complementary rather than persuasive advertising paradigm where consumers have stable quasilinear preferences and the amount of advertising is seller-determined rather than offered at a unit price to consumers.

This paper compares competitive output and generic (or check-off) advertising of the type commonly facilitated in agriculture to the levels of output and advertising under monopoly with the same industry cost structure and consumer preferences using the complementary preference approach developed by Becker and Murphy and others. Advertising is assumed to be seller-determined in the case of monopoly or by an industry advertising planner in the case of competition. The marginal benefit function of advertising in the case of competition is much different than for a monopolist with the same industry cost structure. Although of similar mathematical form in equilibrium, the resulting behavior and intuition are different, and neither achieves a social optimum. Conditions under which monopoly output and advertising are greater than under competition with generic advertising are derived. (C) 2016 Elsevier Inc. All rights reserved.

The generalized expected utility literature typically assumes an absence of judgment bias in the individual perception of probabilities when inferring risk preferences. This assumption is in disagreement with many other studies that document such bias. We show that models of preference anomalies are mathematically equivalent to models of perception anomalies when estimating perceptions and/or preferences based on observable risky choice data. Empirical models admitting both involve multiplicative functions of common variables and are discernible only by assuming specifications that arbitrarily separate the two. This inability to separately identify preferences and probability perceptions is not readily solved by experimental means. Vastly different combinations of preference and perception modifications fit behavioral data identically, implying that Arrow-Pratt risk aversion estimates are arbitrary. In contrast, the risk premium and certainty equivalent are identifiable without unverifiable and untestable separating assumptions, and provide sufficient statistics for policy and welfare analysis regardless.

The paper derives the dynamics of pollution taxes and relative standards-which set bounds on emissions per unit of output-and the resulting optimal replacement of capital goods in a vintage model under the putty-clay assumption. Comparing policies that are constrained by the same aggregate pollution target level, the productive life of capital is longer under dynamic relative standards, as the variable cost of pollution imposed on aging capital is lower. As a result, the absolute level of output from the industry is generally higher under dynamic relative standards than under taxes. The results also show, under reasonable assumptions, that the pollution goal will be achieved using cleaner technologies under dynamic relative standards. These results can explain, from a political economy perspective, the prevalence of dynamic relative standards in regulations.

We present a model of additionality for offsets sold from agriculture to industrial sector sources regulated by cap-and-trade. We consider a potential policy where agricultural sources would not be covered by cap-and-trade requirements but would be eligible to receive offsets whenever their emissions fall below a policy-specified baseline, and would not be penalized for emissions above their baseline. Major results are: (1) The optimal baseline should be set above the average counterfactual emissions of participating farms, an unexpected result that has been missing from the literature. (2) The optimal trading ratio should be greater than one (a ton of offsets counts for less than a ton of covered emissions) even under emissions certainty. Previous research has justified such trading ratios by emissions uncertainty. (3) Emissions uncertainty does not justify a change in the baseline if the accompanying emissions model is unbiased. (4) An optimal combination of policies is to subsidize offsets and tighten the baseline relative to the no-subsidy case.

American Journal of Agricultural EconomicsVolume 95, Issue 2 p. 244-251 ASSA Meeting Invited Paper Session Modeling the Structure of Adaptation in Climate Change Impact Assessment Ariel Ortiz-Bobea, Corresponding Author Ariel Ortiz-Bobea AOrtizBobea@arec.umd.edu (AOrtizBobea@arec.umd.edu)Search for more papers by this authorRichard E. Just, Richard E. JustSearch for more papers by this author Ariel Ortiz-Bobea, Corresponding Author Ariel Ortiz-Bobea AOrtizBobea@arec.umd.edu (AOrtizBobea@arec.umd.edu)Search for more papers by this authorRichard E. Just, Richard E. JustSearch for more papers by this author First published: 20 June 2012 https://doi.org/10.1093/ajae/aas035Citations: 40 Ariel Ortiz-Bobea is PhD candidate and Richard E. Just (rjust@umd.edu) is Distinguished University Professor, Department of Agricultural and Resource Economics, University of Maryland, College Park. This article was presented in an invited paper session at the 2012 ASSA annual meeting in Chicago, IL. The articles in these sessions are not subjected to the journal's standard refereeing process. Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat Citing Literature Volume95, Issue2January 2013Pages 244-251 RelatedInformation

The Annual Review of Resource Economics presents Dr. Richard E. Just in conversation with economist Dr. Arnold Harberger. Dr. Harberger is Professor Emeritus at the University of Chicago and is currently a professor at the University of California, Los Angeles. Dr. Harberger has had an incredible impact on the field of public finance, especially in taxation and exchange policy, in both academic and policy circles. What sets his work apart is an emphasis on elucidating major issues of practical importance with understandable simplicity and transparency while at the same time tackling the general equilibrium dimensions of policy issues of importance at the national level. In this interview, Dr. Harberger talks about his career as well as about his views on theories in economics.

Monopoly pricing is sanctioned by government in a variety of cases (e.g., patent policy). We derive necessary and sufficient conditions on preferences determining when monopolists choose socially optimal, excessive, or inadequate advertising conditional on monopoly pricing behavior. We then derive the behavioral implications of these conditions in an empirically tractable framework that is estimable with typical observable data. (C) 2012 Elsevier Inc. All rights reserved.

The possibility of preference reversals according to the Kaldor-Hicks (KH) criterion in benefit-cost analysis has concerned economists since Scitovsky (1941) first published his results. Lawyers and philosophers have argued that the potential of reversals calls the use of benefit-cost analysis into question, implying elimination of its use. We demonstrate that reversals occur only with inferior goods in the case of static production possibilities and that reversals occur under changing production possibilities only when production possibilities frontiers cross, which is a myopic characterization that ignores practical cases of global production possibilities.

A model with proportional errors in variables arising naturally in microeconomics is considered. Unlike the classical additive errors case, all OLS parameter estimates exhibit attenuation bias that does not depend on the limiting distribution of the data. The distribution of OLS estimators is developed. With no intercept, a simple correction of OLS based on mean predictions is identified that is consistent and asymptotically normal. With an intercept, a readily available additional moment based on sample data identifies the parameters. In neither case are additional restrictions or use of extra-sample data as instruments required as for common errors-in-variables methods.

The concept of parameter identification (for a given specification) is differentiated from global identification (which specification is right). First-order conditions for production under risk are shown to admit many alternative specification pairs representing risk preferences and either perceived price risk, production risk, or the deterministic production structure. Imposing an arbitrary specification on any of the latter three determines which risk preference specification fits a given dataset, undermining global identification even when parameter identification is suggested by typical statistics. This lack of identification is not relaxed by increasing the number of observations. Critical implications for estimation of mean–variance specifications are derived.

Donoso,G. and R. E. Just, 2011. Risk Properties of Inputs: Taking into account Downside Risk Aversion This study develops a general framework to analyze agricultural supply under uncertainty for a producer who is risk averse in the Arrow-Pratt sense and downside risk averse. The model explicitly accounts for the producer's preference for right skewed distributions by approximating the von-Neumann Morgenstern utility for wealth with a third order Taylor's series expansion about final expected wealth. To obtain a higher degree of flexibility of the model, the moments of the distribution of the stochastic per acre profits of output i are modeled such that the moments are separable and distinct functions of the inputs allocated to each output and of the output specific experience of the farmer in producing the ith output. Results indicate that the classification of an input as risk-increasing or decreasing now depends on the effect an input has on the conditional second and third central moments of the joint distribution of per acre profits. For this generalization, a sufficient condition for an input to be risk-reducing (increasing), for a risk averse and downside risk averse producer, is that its use decreases (increases) the conditional second central moment and increases (decreases) the third central moment of the joint distribution of per acre profits. At the same time, however, the generality of the decision model contributes to the ambiguity of the comparative static results. This ambiguity can be reduced under the single-output single-input assumption to the extent that the effects of the exogenous variables on the optimal input allocations can, under additional conditions, be determined unambiguously. In the absence of empirical knowledge, descriptions of policy effects and interactions between agricultural and resource policy are problematic. Thus, further empirical evidence is required in order to thoroughly understand the interactions between agricultural and resource policy

A structural intertemporal model of agricultural asset arbitrage equilibrium is developed and applied to agriculture in the North Central region of the US. The data are consistent with a unifying level of risk aversion. The levels of risk aversion are more plausible than previous estimates for agriculture. However, the standard arbitrage equilibrium is rejected; perhaps, this is due to the period and the shortness of the period studied.

Representing farm-level crop yield heterogeneity and distributional form is critical for risk and crop insurance research. Most studies have used county data, understating both systematic and random variation. Comparison of systematic versus random intra-county variation is lacking. Few studies compare the various distributional forms that have been proposed. This study utilizes the extensive potential of government farm-level crop insurance data. Results show that systematic intra-county variation is surprisingly strong. A newly applied reverse lognormal distribution is preferred when county-wide variation is removed, but the normal distribution fits surprisingly well in the crop insurance relevant percentiles when county-wide variation is not removed.