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Chapter 3 Expectations, information and dynamics
Abstract
The role of expectations in the empirical analysis of agricultural supply is examined under the assumption of separation of expectations and constraints in dynamic decision making. Extrapolative, adaptive, implicit, rational and quasi-rational, and futures-based models of expectation formation are discussed. Empirical and experimental evidence for and against various models of expectation is summarized.
... In particular, the Autoregressive Integrated Moving Average (ARIMA) models are used to forecast the values of the exogenously determined parameters of interest to conduct out-of-sample simulations. Additionally, ARIMA stochastic process estimates express the agents' quasi-rational expectations regarding agricultural commodity prices and crop yields (Nerlove and Bessler, 2001;Siegle et al., 2024). ...
... quasi-rational expectations mechanism (Nerlove and Bessler, 2001;Siegle et al., 2024). ...
... More specifically, we have formulated two alternative models; one referred to as the Quasi-Rational expectations (QR) model and the other as the Naïve and Quasi-Rational expectations (NV&QR) model. In more detail, in the QR model case, the agent'' expectations are expressed through quasi-rational expectations (ARIMA modeling) for agricultural commodity prices and crop yields (e.g., Nerlove and Bessler, 2001;Siegle et al., 2024). In the NV&QR model case, the agent'' expectations are expressed through naïve price expectations for agricultural commodity prices (e.g., Nerlove and Bessler, 2001;Robert et al., 2018;Siegle et al., 2024) and through quasi-rational expectations for crop yields. ...
Although the policy impacts on farms accumulate year by year, most farm decision models focus on short-term decisions, evaluating policies based on snapshots. Structural changes are gradually built; therefore, farm decision models should consider the sequences within the period under study. Multiyear data from the arable sector in Thessaly, Greece, have fed a newly developed farm-level recursive linear programming model mainly to simulate farm structural change dynamics.The proposed model incorporates new evidence on the strategic decision of arable crop farms regarding their remaining in the production system and farm expansion. Results reveal an evident gradual farmland concentration in relatively large farms, accompanied by a gradual expansion of the most profitable cropping activities, verifying the real-world survival strategy of farms.
... In particular, the Autoregressive Integrated Moving Average (ARIMA) models are used to forecast the values of the exogenously determined parameters of interest to conduct out-of-sample simulations. Additionally, ARIMA stochastic process estimates express the agents' quasi-rational expectations regarding agricultural commodity prices and crop yields (Nerlove and Bessler, 2001;Siegle et al., 2024). ...
... Within this context, the ARIMA stochastic process is utilized for estimating the values of exogenously determined parameters of interest (in our case, agricultural commodity prices, crop yields, costs, interest rate, total arable land, and total circulating capital) to perform out-of-sample forecasts in the medium term. In Simulating farm structural change dynamics in Thessaly (Greece) using a recursive programming model addition, ARIMA models are utilized to estimate the values for random/stochastic parameters, such as agricultural commodity prices and crop yields, to express agents' quasi-rational expectations mechanism (Nerlove and Bessler, 2001;Siegle et al., 2024). ...
... 4 The model is written in GAMS language. 5 A detailed description of farm agents' expectations mechanisms is provided in Nerlove and Bessler (2001), Haile et al. (2016), Femenia et al. (2017), and Siegle et al. (2024). farming. ...
Exogenous factors to the family farm, such as the mix of agricultural and economic policies as well as the international economic environment, enter the context of the operations of the farms, significantly influencing the decisions of the producers both in the short term (production plan) and in the medium term (farm size and investments), testing the farms' resilience and compressing their margins of viability. At the same time, based on the expanded policy framework of the new Common Agricultural Policy (CAP), society's demands for performance regarding the social, environmental, and economic dimensions of the sustainability of farms receive significant weight. Consequently, all the factors mentioned above also pose challenges to the operational capacity of existing policy impact assessment tools, presupposing improvements/adaptations that would allow the integration of concepts such as the dynamics of farm behavior in the light of temporal changes in the external environment, and the assessment of sustainability performance of farms. This doctoral thesis seeks to broaden the framework of policy impact assessment at the farm level through the analysis of the conceptual background and the empirical application of the proposed approaches, which concern the development of a recursive programming farm-level model to integrate the evolutionary process of structural change, as well as the development of a composite indicator to evaluate the sustainability performance of farms. Through the proposed approaches, an attempt is made to integrate and model essential components that have not been mainly explored in the context of the country's agricultural production systems. In particular, the thesis is structured based on two research questions. The main research question of the doctoral thesis concerns the integration of structural change in a farm-level model (FLM) to assess policy impacts in a sample of arable farms in a Greek region. The second research question concerns the development of a composite indicator based on multi-criteria decision analysis (MCDA) for the comparative evaluation of the sustainability performance of farms in the light of policy impact assessment. Regarding the investigation of the leading research question, when simulating the various policy scenarios (with emphasis on the upcoming provisions of new CAP: CAP Post-2020), an increased rate of structural change compared to the reference period was estimated. In particular, the results of the simulations reveal a tendency of agricultural land concentration in comparatively large farms (in terms of agricultural land) with a corresponding decrease in the smaller farms, especially the relatively small farms. Furthermore, it is estimated that the top 10% of farms (in terms of agricultural land) will concentrate around 50% of the total agricultural land. Regarding the investigation of the second research question, the obtained results demonstrate that regardless of the policy scenario, the three typical Mediterranean agricultural production systems, i.e., mixed tree farms, extensive livestock farming (sheep farming), and olive tree farms, outperform in terms of sustainability performance compared to arable crop farms which are associated with a more intensive production model and therefore less sustainable. In conclusion, although the spatial and sectoral coverage of the sample does not allow generalizations at the national level, however, the main findings of the proposed models, such as the estimated acceleration of the rate of structural change in arable crop farms, the high degree of concentration of agricultural land in relatively large arable crop farms, and the lag of the specific farms in terms of economic and environmental sustainability performance, are some clear indications that make it imperative to realistically capture the state of the country's agricultural sector through valid scientific tools such as those proposed. These policy analysis tools will contribute to a realistic diagnosis of the sector's structural problems and weaknesses so that policy measures can be appropriately tailored and realistic strategies designed to ensure long-term sustainability.
This research is co-financed by Greece and the European Union (European Social Fund-ESF)
through the Operational Programme “Human Resources Development, Education and
Lifelong Learning” in the context of the project “Strengthening Human Resources Research
Potential via Doctorate Research” (MIS-5000432), implemented by the State Scholarships
Foundation (ΙΚΥ).
... There have been long discussions about the appropriate form of farmers' price expectations in the literature (e.g. Nerlove and Bessler, 2001), but the appropriate form of expectations of the weather conditions have been less studied (one exception is Ji and Cobourn, 2021). However, because weather conditions in one location typically fluctuate around their average long-term valuesw i , one can assume that E(w i,t ) =w i . ...
... Finally, while relation (13) specifically uses observed prices for the inputs (farmers observe the input prices when applying fertilizers and pesticides) in the input/output prices ratio, it uses expected prices for the outputs. The form of crop price expectation is an usual source of debates in agricultural economics (Nerlove and Bessler, 2001). A common practice is to assume that farmers present naive expectations of crop prices (e.g. ...
... The form of farmers' expectations of output prices has been the subject of much research in agricultural economics (Nerlove and Bessler, 2001). While a common practice is to assume, as we did, that farmers have naive expectations of crop prices (e.g. ...
A large literature has assessed the impacts of climate change on agricultural production by estimating reduced‐form models of crop yields conditionally on weather and individual fixed effects. The estimates obtained are usually interpreted as the weather impacts on yields once farmers have adapted. Yet, few attempts have documented that farmers do adapt to weather, and none have verified that these adjustments actually impact crop yields. Our objective here is to unpack how weather affects agricultural production by developing a structural model that explicitly accounts for both the plants' biophysical and farmers' behavioral responses to weather. Considering adaptation during the growing season through fertilizer and pesticide applications, our approach allows us to distinguish the “direct” weather effects (i.e., the agronomic impacts of weather changes on plant growth per se) from the “indirect” weather effects via farmers' input choices (i.e., the adaptation impacts). We estimate the underlying structural model using farm‐level data from the Meuse French department, which provides details of fertilizer and pesticide uses by crop. We show that the reduced‐form and structural estimates indicate similar weather impacts on crop yields, for a large range of sensitivity analyses. Our structural estimates indicate that the adaptation effects are sizable and that farmers' adjustments reduce projected damage from climate change. In our illustrative case, farmers' adaptation offsets between one‐quarter to two‐thirds of the negative agronomic impacts of future warming on crop yields. Our analyses exhibit that commonly used reduced‐form models of crop yields inherently capture these within‐season behavioral responses to weather.
... In general, five principal approaches are used to model expectation formation (Nerlove and Bessler, 2001): extrapolative expectations, adaptive expectations, implicit expectations, rational and quasi-rational expectations, and futures markets. ...
... The extrapolative expectation is due to Goodwin (1947) and basically assume that the expected price in period t is equal to a fraction of the lattest change in the observed price plus (or minus) the lattest observed price. More simply, the expected price in period t is equal to actual price in 1 t plus (or minus) a part of a price change between period 2 t and 1 t (Nerlove and Bessler, 2001). ...
... Conversely, if is equal to zero, actual price will have no effect on 85 expected "normal" price. As noted by Nerlove and Bessler (2001), economic agents revise their notion of "normal" price in each period in a fraction of the difference between the current price and their previous ideas of the "normal" price. Nerlove (1958) shows that, in the adaptive expectation hypothesis, the expected normal price can be represented as a geometrically weighted moving average of past prices: ...
This thesis analyzes food price volatility in Cameroon. First, we examine the determinants of food price volatility in Cameroon. Second, we analyse the transmission of food price volatility in Cameroonian markets. Third, we analyse the supply response to price and volatility for some major staple crops grown by agricultural households in Cameroon. Fourth, we analyse the welfare effects of food price volatility on Cameroonian households. Using diverse econometric methods, results show that food price volatility in Cameroon is determined by the volatility of the price of other local agricultural crops, and not by factors coming from international markets such as volatility of crude oil price and price volatility of import of cereals. This result is confirmed in the case of rice, where there is no price volatility transmission between the world market and Cameroonian markets. Furthermore, results also indicate that producers respond to price volatility by principally increasing their surface area for cultivation and reducing investment in agricultural inputs to improve yield. Finally, poor households are the most affected by food price volatility, with welfare losses from food price volatility depending on the extent of the price hikes. Two main policy lessons are drawn from this thesis. Firstly, it may be important to implement more specific development projects based on commodities such as local cereals, roots and tubers and find ways to improve the efficiency of existing development programs in the agricultural sector. Secondly, knowledge capacity on how household structure and spatial repartitioning of households are affected by changes in food prices, and the responsiveness, can be necessary to implement efficient policies to fight against hunger and poverty.
... In spite of this critical dependence on modeling expectations, most empirical studies of risk behavior arbitrarily impose a specific expectation mechanism as part of the maintained hypothesis without properly acknowledging the dependence of results on that choice. Typical practices for modeling expectations include specifying expected price or expected revenue per acre as (1) a naive expectation equal to price or revenue in a previous period (e.g., Antonovitz and Green 1990 average several recent months), (2) a 3period moving average (Behrman 1968) or 3-period weighted average (Traill 1978), (3) an adaptive expectation with an estimated geometric expectation parameter (Nerlove 1958, Just 1974, (4) a polynomial lag model (Lin 1977), (5) an autoregressive process Moschini 1992, Chavas andHolt 1996), (6) a futures price (Gardner 1976, Just and Rausser 1981, Rausser et al. 1986), (7) an extrapolative expectation developed by extending the trend of a few recent time periods (Goodwin 1947, Ryan 1977, (8) an implicit expectation developed by finding the expectation that best fits observed behavior (Mills 1955(Mills , 1962; see Nerlove and Bessler 2001 for a critical evaluation), (9) a reduced-form estimate derived by regression on exogenous, e.g., pre-harvest, production inputs (Antle 1987(Antle , 1989, (10) a structural estimate derived by simultaneous solution of an estimated supply-demand system, sometimes called a "fully rational expectation" (Antonovitz and Green 1990; see also Nerlove and Bessler 2001)/ and (11) a quasi-rational expectation developed by choosing the best-fitting Autoregressive Integrated Moving Average (ARIMA) model (Eckstein 1984, Goodwin andSheffrin 1982). ...
... In the most recent comprehensive synthesis of the expectation literature, the Handbook of Agricultural Economics, Nerlove and Bessler (2001) state that (i) "information about the future can be acquired only at a cost" (p. 159) and that (ii) "central to almost all treatments of the subject since the work of Keynes and Hicks in the 1930s is the separation assumption, in which dynamic decision problems were modeled by separating expectation formation from optimizing behavior" (p. ...
... Based on these results, we suggest two challenges for risk-modeling research. First, what is the incremental value for empirical models that endogenize the information decision relative to the literature that estimates risk behavior based on standard fixed-mechanism expectations formulations (such as summarized by Nerlove and Bessler 2001 )? Second, in moving from individual decision problems as characterized by the cost-consistent rational expectations formulation of this chapter to aggregate market behavior, what are the appropriate learning process specifications, the associated convergence properties, and characteristics of any resulting equilibrium? ...
Many prominent agricultural economists suggest that risk has only a second-order effect in the agricultural economy and that attention should rather be focused on understanding first-order effects. To determine whether risk effects are of first- or second-order importance, however, producers cannot be modeled in isolation. The linkages among input suppliers and downstream processing, wholesaling, and distribution are also critical. Many of the other agents in agriculture and food systems are keenly concerned not only about market risk but also about basis, credit, and output risk.
... On-farm production decisions often take the form of what is known as "simultaneous decision-making" in game theory (Nerlove and Bessler, 2001;Savikhin and Sheremeta, 2013). ...
... Farmers who are able to anticipate the behavior of other farmers and adapt their own decisions can achieve higher profits (see also Keynes, 1963). Individual production adjustments to (anticipated) future supply are, however, not only crucial for individual farm performance but also for the allocational efficiency of agricultural and food markets (Nerlove and Bessler, 2001). The well-known hog cycle (Harlow, 1960) shows how farmers' myopic expectations can result in serious supply and market price fluctuations. ...
Farmers often decide simultaneously on crop production or input use without knowing other farmers’ decisions. Anticipating the behavior of other farmers can increase financial performance. This paper investigates the role of other famers’ behaviors and other contextual factors in farmers’ simultaneous production decisions. Market entry games are a common method for investigating simultaneous production decisions. However, so far they have been conducted with abstract tasks and by untrained subjects. We extend market entry games by using three real contexts: pesticide use, animal welfare and wheat production, in an incentivized framed field experiment with 323 German farmers. We find that farmers take different decisions under identical incentive structures for the
three contexts. While context plays a major role in their decisions, their expectations about the behavior of other farmers have little influence on their decision.
The paper offers new insights into the decision-making behavior of farmers. A better
understanding of how farmers anticipate the behavior of other farmers in their production decisions can improve both the performance of individual farms and the allocational efficiency of agricultural and food markets.
... This is a strong assumption, however econometric analyses show that perfect foresight does not seem to hold in the context of farm decisions (Nerlove and Bessler, 2001;Femenia and Gohin, 2011). We show in Appendix A.4 that an adaptive expectation assumption lead to similar equilibria. ...
... This choice was made for the sake of simplicity, as perfect expectations would have been analytically challenging to represent. Moreover, such assumptions are commonly used in agricultural economics and CGE models and the hypothesis of limited rationality seems to hold in the context of agricultural agents (Nerlove and Bessler, 2001;Femenia and Gohin, 2011). However, this makes our models unable as such to represent the reaction of the agents on information on future market conditions. ...
This thesis develops several innovations to improve the representation of the regional dynamics of agri-food sectors in applied trade models. The first chapter presents an original theoretical framework to analyze the dynamics and resilience of agricultural value chains. We use this framework to discuss the consequences of the COVID-19 pandemic on food supply chains. The second chapter presents a multi-regional dynamic model of agricultural value chain with economies of agglomeration. It is calibrated on the French dairy sector. We show that the dynamic response of regional value chains to shocks on the price of dairy products and transport costs can be chaotic and hysteretic. The regions with the densest production have the most resilient dairy sectors. In the third chapter, we modify the MIRAGRODEP computable general equilibrium trade model to integrate the representation of agricultural value chains with economies of agglomeration developed in chapter 2. We show the importance of hysteresis in trade by simulating scenarios with different chronologies of dairy market liberalization. We study the consequences of different types of supports of the dairy sector on their geographic distribution. Finally, we show that an environmental taxation of coal and petroleum products leads to an increase of transport costs and the concentration of milk production.
... By contrast, decisions with lags have been commonly featured in the agronomic literature, stemming from the seminal work of Nerlove (1958). In these studies, farmers encountering similar price delays or decision lags are price takers and possess rational or quasi-rational expectations (Nerlove and Bessler, 2001). Typically, expected prices are taken from futures prices (instrumented or uninstrumented), lagged prices, or predicted prices from a univariate time series (Roberts and Schlenker, 2013). ...
... We assume fishers follow quasi-rational expectations (QRE) (Nerlove and Bessler, 2001) in determining the expected prices of species. Quasi-rational fishers are only bounded rational, not knowing the exact forecasting model but computing their estimates of future prices based on past observations. ...
... In terms of the proxy for expected output prices, the literature does not provide unambiguous evidence regarding which expectation model to use for empirical agricultural supply response estimation (Nerlove and Bessler 2001;Shideed and White 1989). The widely applied expectation formation hypotheses in the supply response literature include the following themes: naïve expectation (Ezekiel 1938), where expected prices are assumed to be equal to the latest observed prices; adaptive expectation (Nerlove 1958), where farmers are assumed to revise their expectations depending on past errors; and rational expectation (Muth 1961), which assumes that expectations are consistent with the underlying market structure and that economic agents make efficient use of all available information. ...
... Following Nerlove (1958), several empirical supply response models employ the adaptive expectation hypothesis and its variants. Askari and Cummings (1977) and later Nerlove and Bessler (2001) provide a thorough review of such literature; however, Yu, Liu, and You (2012), Vitale, Djourra, andSidib (2009), andde Menezes andPiketty (2012) can be mentioned as recent examples. Moreover, Aradhyula and Holt (1989) employ the rational expectation hypothesis to investigate broiler supply in the United States, while Eckstein (1938) and Lansink (1999) apply it to estimate crop acreage elasticities using aggregate agricultural data and farm-level data, respectively. ...
... What differentiates these two theories is the type of expectations: simple backward-looking, or rational. Two main strategies have been developed to identify how agents form their expectations (Irwin andThraen, 1994, Nerlove andBessler, 2001). In the first, when direct measures of expectations are unavailable, a structural model of supply and/or market equilibrium is required. ...
... In a survey of this literature, Irwin and Thraen (1994) highlight a lack of consensus regarding the rationality of expectations. Nerlove and Bessler (2001), however, are more positive. They find that agents try to adapt their forecasts according to the underlying stochastic process, but not in an optimal manner. ...
This thesis proposes an analysis of food price stabilisation policies in poor countries. In order to represent the conditions in these countries, we introduce in a rational expectations storage model the assumption that consumers cannot insure against price risk and are risk averse. The market incompleteness justifies public intervention and various stabilisation policies are analysed. An optimal storage policy implies a storage level higher than without intervention. This additional storage crowds out private storers by removing the profit opportunity from speculation. Since the use of complex intervention rules is unlikely in poor countries, we compare state-contingent optimal food storage policies, with and without commitment, to simple storage rules such as a constant private storage subsidy or a price-band defended by public storage. The ability of government to commit to a policy rule brings additional welfare gains in comparison with a discretionary policy. These gains stem from the possibility of manipulating producers' expectations and, thus, of inducing them to promote stabilisation. Simple stabilisation rules can achieve, when designed optimally, gains closed to those of state-contingent policies. Finally, the analysis of stabilisation policies is extended to an open economy framework in which the stabilisation instruments are trade and storage policies. An optimal storage policy alone fails to protect consumers, since most additional storage is actually used to serve the world market. In contrast, an optimal trade policy strongly decreases price volatility by exploiting the world market.
... Farmers' expectations about the future may also drive the adoption process (Nerlove and Bessler 2000). We include dummies to capture different expectations about the future of public policy on banana subsidies (Future_subsidies), market price (Future_price), and pesticide bans (Future_Pest). ...
The objective of our paper is to provide an explanation for the lack of joint adoption by farmers of cleaner technologies in banana production, specifically fallow period (FP) and disease-free seedlings (DFS). Our hypothesis is that while these technologies are synergistic from an agronomic and environmental perspective, and thus efficient from a social interest perspective, they are substitutable rather than complementary from a farmer’s private interest perspective. In other words, farmers receive lower returns from adopting both technologies together than from adopting them in isolation. To test this hypothesis, we present a unified empirical framework for assessing complementarity. We estimate a structural model of complementarity that overcomes the unobservable heterogeneity bias found in previous models using a database of 607 banana farmers in the French West Indies. Our results support our hypothesis, showing a substitution effect between FP and DFS rather than a complementarity effect. Moreover, we observe a contrasting profile of adopting farmers: smallholders who are reluctant to change adopt FP, while more specialized farmers who anticipate a pesticide ban adopt DFS. A public policy that promotes joint adoption should compensate smallholders for the cost of the DFS technology, while compensating more productive farmers for leaving their land fallow.
... La capacité de l'analyste à comprendre ces croyances et leur évolution est donc un atout pour améliorer le design des OADs. L'analyse des croyances est un domaine important de l'économie agricole, particulièrement les anticipations sur les prix (Nerlove et Bessler, 2001). Les économistes ont développé des méthodes de mesure des 12. Les économistes utilisent les deux termes anticipations (expectations) et croyances (beliefs). ...
Cet article propose une réflexion sur les apports des sciences économiques à l’analyse de la décision des utilisateurs d’outils numériques d’aide à la décision (OADs) pour l’optimisation des traitements phytosanitaires pour la protection des cultures. Il rappelle les facteurs économiques et comportementaux de l’utilisation des pesticides par les agriculteurs et analyse la façon dont ceux-ci mobilisent l’information et les préconisations fournies par les OADs en fonction de leurs attitudes face au risque, de leurs anticipations et de leurs croyances, notamment sur la fiabilité de l’OAD. L’évaluation économique ex ante des préférences des utilisateurs pour certaines caractéristiques des OADs et l’évaluation ex post de l’impact des OADs et de leur usage conduisent les autrices à proposer des pistes de recherche mobilisant les sciences économiques afin d’améliorer la conception des OADs pesticides.
... Linear detrending is widespread, straightforward and comprehensible, but there are also other methods like the adaptive expected value formation or the expected value formation by ARMA-processes (Nerlove and Bessler, 2001). The adaptive expected value formation is based on the assumption that farmers apply a simple heuristic and predict the future based on the past ('naïve' expectations). ...
The analysis of income risk is the basis for farm risk management. However, comprehensive overall risk analyses are often scarce, e.g. for Germany. The present study analyses risk exposure for more than 3,000 farms in Germany in the period 1996/97-2015/16 on the basis of the national FADN data. We use the coefficient of variation, variance decomposition and robust regression techniques to quantify risk exposure and its drivers. Our results show that (i) risk exposure is heterogeneous, (ii) farm income risk increased in the period after 2007 for many farms, especially arable and dairy farms, and (iv) the return on sales decreases farm income risk substantially.
... especially in the long-term, based on machine learning (Banerjee et al., 2022;Bayona-Oré et al., 2021) and time series analysis (Bowman, 2004;Ruekkasaem and Sasananan, 2018). However, the most relevant predictions to our decision-making system are short-term (within 4-5 months), for which most models do not perform significantly better than the estimates guided by farmers' expectations (Bowman, 2004;Nerlove and Bessler, 2001). ...
... The attempt successfully quantified, through indexing, farmers' expectation toward the farm-gate prices of rice and wheat under the acreage control program. The reason why we did not employ a more popular econometric approach [30,31] is because it is not necessarily good at treating the targets of policies [15,16]. The merit of applying the PMP approach to this subject can be summarized as the explicit inclusion of the target of a policy of interest. ...
Positive mathematical programming (PMP) has a substantial number of applications in the field of agricultural and resource economics. Their focus has often been placed on the simulation analysis of farmers’ response to drastic changes in exogenous factors especially brought about by policy changes. In the present study, an exploration was made to widen the application area of the PMP approach, targeting farmers’ expectation toward the farm-gate price of rice in comparison with that of wheat under the policy to suppress overproduction. When domestic consumption is mature and the regulation of production by the government is present, farmers’ expectation toward the farm-gate price of a crop can be assumed to fall in response to an increased allocation of land area to produce the crop. The degree of the fall is defined as the expectation fall index (EFI) in the present study. A proposition was made as to the procedure for quantifying EFI using the PMP approach with statistical datasets of multiple years retrieved from the Ministry of Agriculture, Forestry, and Fisheries. The present study is considered to have provided a basis to discuss the formation processes of farmers’ attitudes toward policy measures.
... (16) The empirical literature on different models of price expectations is inconclusive, without a clear preference for either backward-looking prices (naive or adaptive expectations), (quasi-)rational expectations, future prices or monthly prices (Shideed and White, 1989;Chavas, 2000;Kenyon, 2001;Nerlove and Bessler, 2001;Haile et al., 2016). Chavas et al. (1983) find that future prices may correspond better to the price formation process for some crops, but future price information is not available for all activities and farmers in all countries (Chavas, 2000), which complicates its implementation in the IFM-CAP model. ...
This report presents the second version of the EU-wide individual farm level model (IFM-CAP) which aims to assess the impacts of the CAP post-2020 reform on farm economics and environmental effects. The rationale for such a farm-level model is based on the increasing demand for a micro simulation tool capable to model farm-specific policies and to capture farm heterogeneity across the EU in terms of policy representation and impacts. Based on Positive Mathematical Programming, IFM-CAP seeks to improve the quality of policy assessment upon existing aggregate and aggregated farm-group models and to provide assessment of distributional effects over the EU farm population. To guarantee the highest representativeness of the EU agricultural sector, the model is applied to every EU-FADN (Farm Accountancy Data Network) individual farm (83292 farms).The report provides a detailed description the IFM-CAP model (IFM-CAP V.2) in terms of design, mathematical structure, data preparation, modelling livestock activities, allocation of input costs, modelling of the current CAP setting (2013-2020) and calibration process. The theoretical background, the technical specification and the outputs that can be generated from this model are also briefly presented and discussed.
https://publications.jrc.ec.europa.eu/repository/handle/JRC127014
... Economists have developed a number of theories to describe the process by which agents form expectations of uncertain future events (Nerlove and Bessler, 2001). Chief among them is rational expectations, which posits that economic agents make efficient use of all available information, just as they do other scarce resources (Muth, 1961). ...
... Second, the area model specified in Equation (14) intends to examine the impact of the grain (procurement) price on the area sown with grain. Following Nerlove [39,40] and Nerlove and Bessler [41], we account for possible time lags in area responses to price changes by including the one-period lagged land area. Third, the agrochemicals model in Equation (15) aims to estimate the impacts of the grain (procurement) price and the land area sown with grain on agrochemical use. ...
China’s minimum grain procurement price program aims to boost grain production and ensure food self-sufficiency. It may also affect the already very high levels of chemical fertilizer and pesticides consumption, but little is known about these potential side-effects. In this paper, we apply panel data regression techniques to a large rural household-level data set for the period 1997–2010 to examine whether and how the minimum grain procurement price program affected households’ agrochemical use. We find that the minimum grain procurement price program negatively affected both chemical fertilizer and pesticides use, with pesticides use being more responsive than the use of fertilizer. The higher wheat and rice prices that resulted from the program stimulated the use of agrochemicals, but they also stimulated area expansion which contributed to lower agrochemical use per unit of land. These counteracting indirect effects were overshadowed by the large negative direct effect of the minimum procurement price of rice on the use of fertilizer and pesticides.
... We thus assume that farmers have naïve anticipation for output prices but perfect anticipation for input prices. This assumption is common in most agricultural economics studies on short-term profit-maximization problems due to the dynamic process of plant growth (Nerlove and Bessler, 2001;Carpentier and Letort, 2012). Indeed, farmers sow their land a few weeks after the harvest of campaign without knowing the output prices of campaign t − 1, but pesticides and fertilizers are used during the spring of campaign t. ...
The application of synthetic pesticides by farmers generates fierce debates in France. This paper offers an original macroeconomic quantification of the economic and environmental impacts of pesticide applications. We first reveal the statistically significant influence of the prices of crops and pesticides on these applications. This influence is smaller for cereals than for other crops. We then simulate some economic and environmental impacts of potential French policies that may be introduced. As expected, implementation of a tax policy reduces pesticide use and weakens the economic situation of French farmers and food processors. More originally, we find that French livestock activities are seriously affected by increased feed costs. We also find that a pesticide tax increases nitrogen pollution and greenhouse gas emissions due to global land use changes. Finally, policy insights regarding these macroeconomic results are discussed. JEL Codes: Q11, Q18.
... The opposition between both theories lies in the way the agents are assumed to form their expectations. The thing is that it is difficult to test hypotheses on the formation of expectations, as discussed in Nerlove and Bessler (2001). This is why Prescott (1977)'s view has been retained in most of the subsequent attempts to empirically validate the models rooted in either theories. ...
This thesis proposes an empirical and theoretical analysis of commodity price volatility using the competitive storage model with rational expectations. In essence, the underlying storage theory states that commodity prices are likely to spike when inventory levels are low and cannot buffer the market from exogenous shocks. The prime objective pursued in this dissertation is to use statistical tools to confront the storage model with the data in an attempt to gauge the empirical merit of the storage theory, identify its potential flaws and provide possible remedies for improving its explanatory power. In this respect, the variety of econometric strategies employed so far to test the model itself or its theoretical predictions are reviewed in the opening survey (Ch. 2). The subsequent chapters explore three different routes with the aim of increasing the empirical relevance of the storage framework. Chapter 3 rests on the idea that there might exist long-term movements in the raw commodity price series which have nothing to do with the storage theory. This tends to be confirmed by the results obtained by implementing a hybrid estimation method for recovering jointly the model’s deep parameters with those characterizing the trend. In chapter 4 the testing of the storage theory is pushed even further thanks to the development of an empirical strategy to take the storage model to the data on both prices and quantities, for the first time in the literature. Another novelty is that Bayesian methods are used for inference in contrast to the frequentist approaches employed thus far. Hopefully both these innovations should help paving the way for future research in allowing for the estimation of more complex model set-ups. The last chapter is more theoretical as it deals with the storage model extension on the supply side to account for the dynamics of capital accumulation. The key finding is the crowding-out effect of storage on investment.
... Therefore, the analysis effectively constitutes a joint test of the hypothesis of behavior and of the model of expectation formation. As a consequence, different models of expectation formation can only be contrasted and compared when direct observations of expectations are available (Just & Rausser, 2002;Nerlove & Bessler, 2001;Pesaran, 1987). While direct observations of expectations can usually not be found in secondary data, they can be generated in experiments. ...
To inform more realistic representations of farmer decision making in agent-based simulation models applied to agricultural adaptation assessment at the regional scale, the present thesis investigates three areas of central importance for judgments about farm-level reactions to climate change: (i) perception of changes in local weather conditions and expectations about their effects; (ii) reception of signals from the biophysical environment and their interpretation in terms of socially constructed understandings of climate change, farm-level risks, and perceived adaptation capacity; and (iii) the nature of expectation mechanisms involved in the formation of judgments about climatic changes. For this purpose, three types of empirical approaches were used: questionnaire-based surveys conducted with farmers from two study areas in Southwest Germany, the Central Swabian Jura and the Kraichgau; a questionnaire-based comparative study of farmer school students and pre-first-semester undergraduate university students enrolled in study programs related to agriculture without experience in farming and no study experience; and economic lab experiments conducted with farming practitioners (experienced farmers and farmer school students) and university students from agriculture-related study programs with several semesters of study experience. Based on these empirical findings, the following recommendations for the agent-based modeling software MPMAS are derived: (i) agent-specific levels of climate change awareness should be accounted for to reflect the effects of personal experiences with climate change outcomes, social norms and individual-specific learning patterns and coping behavior; (ii) the effects of incomplete information assessment and risk aversion should be reflected in the imputed selection mechanism for climate change response, i.e. for the choice of adaptation measures; and (iii) experimental results should be used to inform modeled expectation mechanisms of agents, currently implemented for judgments about future prices and yields.
... An alternative pricing scheme must be based on a different expectations formation model; one alternative is adaptive expectations. Following Nerlove and Bessler (2001) one can suppose that at every time t the expected land's revenue is the steady state value plus a portion of the deviation from the one observed in the last period, this is: ...
Un sistema financiero bien informado y cauteloso puede mejorar el bienestar de una economía al canalizar los excedentes de los ahorradores a los prestatarios. Sin embargo, en una situación de crisis, el menor precio de bienes hipotecables limita la capacidad de crédito de la economía, generando la posibilidad de una reducción en el crédito inclusive en un escenario de bajas tasas de interés. Este documento ilustra el punto anteriormente mencionado através de un modelo de equilibrio general en el que el uso de activos como colateral determina que tan riesgoso es el comportamiento del sistema financiero. Esta y varias otras condiciones amplifican la magnitud de un choque de productividad negativo
... Le modèle propose en effet le système optimal pour un ensemble de prix supposés durablement plus bas ou plus élevé sur le moyen terme sans envisager que la conjoncture pourrait s'inverser dans un horizon un peu plus lointain. Les acteurs économiques s'appuient souvent sur les prix passés pour faire des hypothèses sur le futur (Nerlove et Bessler, 2001) mais ils peuvent aussi se dire que l'avenir est incertain et qu'il est préférable de rester diversifier pour faire face à toute éventualité. Cela est encore plus vrai dans les cas où la rentabilité de chaque production est proche comme en Midi-Pyrénées. ...
Ce numéro d'Innovations Agronomiques rassemble des articles issus de communications présentées au colloque national «Les polycultures-élevages: valoriser leurs atouts pour la transition agro-écologique » organisé par le RMT SPyCE et AgroSup Dijon, à Dijon les 10 et 11 octobre 2017.
... Therefore, the coefficients are significant in the regressions for cotton while they are not in the regressions for rice. Askari and Cummings (1977), Braulke (1982), Choi and Helmberger (1993), Nerlove and Bessler (2001), Huang and Khanna (2010), Hausman (2012). ...
Using fine-scale panel data and an econometric model, we predict land use change in the Midwestern United States if a new bioenergy crop, Miscanthus × Giganteus (miscanthus), is introduced. To explain farmers' current crop choices, we use a local, limited dependent variable regression based on soil and weather characteristics. To this model, we add miscanthus as a new crop, based on its place dependent BioCro model-predicted yield. We find that the vast majority of land used to grow miscanthus will come from land now used for non-major crops, pasture, woodland, and other uses. This implies that miscanthus can help mitigate climate change by displacing oil usage without causing food conflict.
... So, we have to use the "estimated" total quantity of raw milk production in time t, which is unobserved at the time of decision making. To approximate this unobservable variable, following Nerlove and Bessler (2001), we use data on the "observed" supply of raw milk (i.e., supply in previous time periods) and estimate Q t = b 1 Q t−1 + b 2 Q t−2 + . . . + b p Q t−p + μ t + c 1 μ t−1 + . . . ...
The farm-gate price of raw milk in Iran is determined annually in negotiations among representatives of dairy processors, milk producers, and government officials. This study estimates the average bargaining power of dairy farmers and processors, through applying the generalized axiomatic Nash approach in a bilateral bargaining model. We employ annual data from 1990 to 2013 to estimate econometric representation of a bilateral bargaining model using a Monte Carlo expectation maximization algorithm. Results imply a higher bargaining power of 0.69 for processors, compared with 0.31 for farmers. This asymmetry of bargaining power causes unequal allocation of gains in the milk market.
... So we choose 70 km for the regressions. 9 For reviews of share response literature, seeAskari and Cummings (1977) andNerlove and Bessler (2001). ...
Farmers may adapt to climate change by substituting away from the crops most severely affected. In this paper we estimate the substitution caused by a moderate change in climate in the US Midwest. We pair a 10-year panel of satellite-based crop coverage with spatially explicit soil data and a fine-scale weather data set. Combining a proportion type model with local regressions, we simultaneously address the econometric issues of proportion dependent variables and spatial correlation of unobserved factors. We find the change in expected crop coverage and then we link those changes to the expected changes from an estimated climate dependent yield equation. Ceteris paribus, we find that climate induced changes in yield are offset by land coverage changes for rice and cotton but they are strongly amplified for corn and soy.
... Th e basic level of the vertical is agricultural producers, who are presented in the model as subjects off ering livestock for the purpose of slaughter processing. Th e behaviour of these farmers is determined by the prerequisite of the adaptable price expectation of the mentioned subjects (Nerlov and Bessler 2001), and from the point of functional relations, the off er of slaughter livestock is infl uenced by the total amount of full-feed cattle, by the rate of import and the farmers price of beef (TARIC classifi cation), by the amount of unit support per 1 kg of beef (for more information see the UZEI methodology) and by the time vector, see relation (1). Th e states of cattle in the full-feed category depend on the quantity of cows without commercial production of meat, on the farmer price per 1 kg of live weight as well as on the unit subsidy for 1 kg of beef, see relation (2). ...
The main goal of the presented paper is to propose, specify and quantify a model of partial equilibrium in the beef meat vertical in the Czech Republic. Characterized within the analyzed relations in the commodity vertical will be the demand-offer relationships on partial levels of the commodity chain on the basis of which the functional relations of the simultaneous model of the above-mentioned market will subsequently be specified. The quantified model enables the definition and description of the main determinants of the beef offer and demand. The data used was acquired from the Situation and Forecast Reports (MA CZ), from the Annual Reports on the State of Agriculture (UZEI) and from the Family Accounts Statistics (CSU), for the period from 1995–2010. With regard to respecting the simultaneous relations, the model estimate was carried out by the means of the two-level method of least squares with the subsequent statistic-econometrical verification. The acquired model shows a sufficient robustness for market analyses and the possible simulation calculations.
... ( 10 ) The empirical literature on different models of price expectations is inconclusive, without a clear preference for either backward-looking prices (naive or adaptive expectations), (quasi-)rational expectations, future prices or monthly prices (Shideed and White, 1989;Chavas, 2000;Kenyon, 2001;Nerlove and Bessler, 2001;Haile et al., 2016). Chavas et al. (1983) find that future prices may correspond better to the price formation process for some crops, but future price information is not available for all activities and farmers in all countries (Chavas, 2000), which complicates its implementation in the IFM-CAP model. ...
... However, storage subsidies can encourage farmers to expand their production (Choi and Meyers, 1989), which, in turn, might have a variety of implications in terms of price stabilization and welfare effects. Furthermore, the soundness of the rational expectation assumption has often been questioned (Conlisk, 1996;Manski, 2004;Pesaran, 1987), and econometric analyses of farmers' behavior generally conclude that farmers have quasi-rational, as opposed to rational, price expectations (Chavas, 1999;Nerlove and Bessler, 2001). Boussard (2011, 2012) are the only studies, to our knowledge, that do not assume rational expectations in considering private storage of agricultural goods; instead, they depart from the theory of competitive storage and rely on a nonlinear cobweb model (Ezekiel, 1938) in which agents have adaptive expectations and are risk averse. ...
We study here the effects of a public subsidy to private storage set up at world level. To simulate the welfare effects and impacts on market fluctuations of this subsidy, we use a dynamic Computable General Equilibrium model assuming imperfect expectations. We also perform different statistical analysis based on our CGE results and show that the storage subsidy can have the undesired effect of destabilizing agricultural markets, depending on the form of economic agents’ price expectations and on the structure of the shocks impacting the agricultural production.
In an ever‐more‐competitive global beverage market, vignerons compete for the attention of consumers by trying to differentiate their wine from others while also responding to technological advances, climate change and evolving demand patterns. In doing so, they highlight their regional and varietal distinctiveness while keeping an eye on changes in consumer preferences for different varieties. This paper examines and seeks to explain the extent to which winegrape varietal mixes vary across regions and over time within Australia and relative to the rest of the world. It reports changes in indices of similarity across regions and indices of concentration in the winegrape varietal mix within regions. Nationally, the varietal mix has become less differentiated and closer to that of France and the world as a whole. However, individual regions within Australia are becoming more concentrated in their mix of varieties and more differentiated from other Australian regions. We estimate supply response models based on a Nerlovian adaptive profit expectations and partial acreage adjustment framework. These models do not provide insights into many of the variables influencing vignerons' planting decisions, but they help explain recent changes in varietal mixes. The results suggest that changes in varietal mixes are more motivated by expected revenues than by what may work best based on the climate of each region. In the wake of climate change and global wine demand premiumising, some Australian vignerons may find their region is too warm for producing high‐quality wine with the winegrape varieties planted there.
Usando los mínimos cuadrados ordinarios modificados se estimó la respuesta de largo plazo de la oferta de yuca a las variaciones del precio en los departamentos de Córdoba y Sucre, Colombia, durante el período 1976-2019 mediante regresiones cointegrantes de la producción, el área y el rendimiento como proxies a la oferta. La respuesta es inelástica al precio: una variación de este en 10 % aumenta la oferta en 8,1 %: 62 % de tal incremento se produce por expansión del área y 30 % por ampliación de la productividad. Esta sensibilidad a factores de precio sugiere que las intervenciones del Estado deben enfatizar en su papel de proveedor de bienes públicos.
Disease emergence in livestock is a product of environment, epidemiology and economic forces. The environmental factors contributing to novel pathogen emergence in humans have been studied extensively, but the two-way relationship between farm microeconomics and outbreak risk has received comparably little attention. We introduce a game-theoretic model where farmers produce and sell two goods, one of which (e.g. pigs, poultry) is susceptible to infection by a pathogen. We model market and epidemiological effects at both the individual farm level and the community level. We find that in the case of low demand elasticity for livestock meat, the presence of an animal pathogen causing production losses can lead to a bistable system where two outcomes are possible: (i) successful disease control or (ii) maintained disease circulation, where farmers slaughter their animals at a low rate, face substantial production losses, but maintain large herds because of the appeal of high meat prices. Our observations point to the potentially critical effect of price elasticity of demand for livestock products on the success or failure of livestock disease control policies. We show the potential epidemiological benefits of (i) policies aimed at stabilizing livestock product prices, (ii) subsidies for alternative agricultural activities during epidemics, and (iii) diversifying agricultural production and sources of proteins available to consumers.
En este artículo, se identifican determinantes de la oferta primaria de ganado vacuno para cebar en el departamento de Córdoba, Colombia, durante el período 2007-2018. Para ello se utiliza un modelo econométrico lineal autorregresivo con retardos distribuidos que permite, mediante la prueba límite, establecer las relaciones de largo y de corto plazo entre las variables. Los resultados empíricos evidencian que los ganaderos responden a estímulos de mercado, como precios y costos de producción; son adversos al riesgo-clima y al riego-precio; compiten por recursos productivos con un cultivo como el maíz; la predominancia del sistema de producción del doble propósito y la presencia de comercializadores intermediarios que realizan ceba incompleta explican una relación directa entre el ciclo de la ceba final y la oferta primaria.
El objetivo del presente estudio fue estimar la respuesta de la oferta del plátano y las elasticidades de corto y largo plazo mediante el modelo de ajuste parcial desarrollado por Nerlove, tomando como base el periodo entre 2000 y 2018. Se aplicó un diseño de investigación explicativo, cuantitativo y correlacional y para la estimación empírica se empleó la metodología de los vectores autorregresivos. Los resultados indicaron que los coeficientes asociados al precio y producción rezagadas fueron positivos, significativos y coherentes con la teoría económica. Las elasticidades calculadas de corto plazo fueron inelásticas y similares a estudios relacionados con los cultivos permanentes por lo cual se puede inferir que las políticas de precios no son una herramienta eficaz para aumentar la oferta del plátano debido a la baja respuesta de la producción a movimientos en los precios.
Dynamic models of the firm applied to market intermediary behavior are reviewed and formulated. An important input that we have ignored so far is capital. Different models applicable to modeling capital, with special reference to agricultural models, are presented and discussed in this chapter. Both single capital input and multi-variate adjustment cost models are presented. The linkage between quasi-fixed inputs and raw material demand is highlighted. Inventories can be a source of dynamic adjustment of the firm. Dynamic inventory models are formulated to show how lagged inventory adjustment can lead to lagged adjustment in prices and input demands. I discuss some ways in which this model can be modified and extended for other applications. Expectations and lagged inventories through adjustment costs are shown to be significant factors in dynamic adjustment. Different models for expectations formation are presented, and the dynamic inventory model is specified for quasi-rational expectations. Other, mostly empirical approaches to modeling dynamic input demand behavior are also discussed.
In this chapter, we consider both vertical and horizontal effects on derived demand for raw materials, and total effects of exogenous variables on retail and farm prices. In the last chapter we showed how retail-to-farm price linkages could be formulated and estimated consistently. In this chapter, these relationships are combined with the retail demand elasticities for meats from Chapter 5 to derive total impacts of retail demand, farm supply, and marketing costs on derived demand and retail and farm prices. We derive the properties of these generalized derived demands as well as formulas for the total elasticities. This chapter also evaluates this approach to retail-to-farm price linkages in light of role imperfect competition may play on the price relationships. Finally, causes of short-run price determination from lags between retail and farm prices are evaluated, and an empirical application to beef price spreads is presented.
As the consequences of climate change for agricultural production slowly unfold at the local level (sometimes with contradicting signals), farmers’ information processing and decision making become more relevant for policy analysis and modelling. The major challenge is to reveal patterns in the way farmers form expectations about future production outcomes and to encode these findings into models of heterogeneous expectation formation. We developed and tested a payout‐motivated field experiment to observe farmer decision‐making under climate change and to examine how they form their expectations in a recursive‐dynamic context. Participants were exposed to ambiguity and acquired incremental evidence about the true distribution of possible climate outcomes through repeated random draws. Simulation models used in agricultural and environmental research usually implement simple forms of adaptive agent expectation or completely neglect this issue by assuming perfect foresight or constant expectations. Our computer laboratory experiments with blue‐ and white‐collar farmers from Southwest Germany (n = 97) suggest that expectation behaviour of a large share of farmers can be well replicated with Bayesian types of expectation models.
İklim Değişikliğinin Türkiye Tarım Sektörüne Etkisi
The Ogallala Aquifer is the main water resource for irrigated agricultural production in much of Western Kansas. It is hypothesized that as crop price expectations increase, producers will apply more water to increase yields in order to maximize profit. Using field-level panel data on groundwater pumped for irrigation in Western Kansas, this paper examines whether irrigated producers’ groundwater pumping decisions are consistent with the profit maximization framework by empirically testing if crop price expectations have a positive impact on the quantity of groundwater pumped. In general, the empirical results indicate that crop price expectations have no statistically significant impact on the quantity of groundwater pumped per acre. This suggests that groundwater pumping decisions are not consistent with the profit maximization framework and that irrigated producers consider groundwater as a fixed input possibly due to limited availability of groundwater in the area. Our econometric analysis also suggests that only a small portion of rainfall is effective.
Crop insurance premium subsidies affect patterns of crop acreage for two reasons. First, holding insurance coverage constant, premium subsidies directly increase expected profit, which encourages more acreage of insured crops (direct profit effect). Second, premium subsidies encourage farms to increase crop insurance coverage. With more insurance coverage, farms obtain more subsidies, and farm revenue becomes less variable as indemnities offset revenue shortfalls, so acreage of insured crops likely increases (indirect coverage effect). By exploiting exogenous policy changes and using approximately 180,000 county-crop-year observations, we estimate the sum of these two effects of premium subsidies on the pattern of U.S. acreage across seven major field crops. We estimate that a 10% increase in the premium subsidy causes a 0.43% increase in the acreage of a crop in a county holding the premium subsidy of its competing crop constant. Taking into account the small share of premium subsidies in expected crop revenue, this subsidy impact is analogous to an own-subsidy acreage elasticity of 1.24, which exceeds own-price acreage elasticity estimates in the literature. One explanation for the larger acreage response to premium subsidies is that insurance causes an indirect coverage effect in addition to a direct profit effect.
We analyze the determinants of global crop production for maize, wheat, rice, and soybeans over the period 1961–2013. Using seasonal production data and price change and price volatility information at country level, as well as future climate data from 32 global circulation models, we project that climate change could reduce global crop production by 9% in the 2030s and by 23% in the 2050s. Climate change leads to 1–3% higher annual fluctuations of global crop production over the next four decades. We find strong, positive and statistically significant supply response to changing prices for all four crops. However, output price volatility, which signals risk to producers, reduces the supply of these key global agricultural staple crops—especially for wheat and maize. We find that climate change has significant adverse effects on production of the world’s key staple crops. Especially, weather extremes— in terms of shocks in both temperature and precipitation— during crop growing months have detrimental impacts on the production of the abovementioned food crops. Weather extremes also exacerbate the year-to-year fluctuations of food availability, and thus may further increase price volatility with its adverse impacts on production and poor consumers. Combating climate change using both mitigation and adaptation technologies is therefore crucial for global production and hence food security.
Based on the data of cohort longitudinal study "Educational and Career Trajectories", factors affecting absolute and relative expected returns on education (ROE) are investigated. Surveys of Moscow students show that academic performance assessed by Unified State Exam (USE) scores is an important predictor of students' salary expectations. Besides, expected ROE also correlates positively with college selectivity. Students in private colleges expect to be paid lower than those in state universities. Social and cultural capital of the family (parental education, number of books at home) may influence salary expectations indirectly, through academic performance. Students from wealthier families expect to have a higher ROE than their disadvantaged peers, and so do boys as compared to girls. Students working part-time expect to be paid higher than non-working students after graduation but anticipate a lower return on investment in relative terms.
The Forest Agent-Based Landowner Economy (FABLE) model simulates a market where private forest landowner agents with heterogeneous preferences cast bids using normative decisionmaking rules. In doing so, the model connects two areas of study important to the forest economics literature: market behavior and behavior of individual forest landowners. The model constructs heterogeneity by separating agents into those who bid based on a valuation of timber and those who bid based on an amenity value. Furthermore, discount rates vary among agents and stand age is drawn from an empirical age class distribution of North Carolina’s southern coastal plain. Model outputs include price, removals, average harvest age, and age class structure. A sensitivity analysis on demand curve and amenity value scenarios shows expected economic relationships as exhibited by model outputs and by implicit supply and inventory elasticities. For the majority of scenarios, these elasticity estimates, which are not predetermined but represent an emergent property of the model, are consistent with empirical estimates. Equilibrium dynamics mimic long-wave inventory cycles found historically, rather than simple steady-state solutions.
The purpose of this book is to provide an assessment of the role of risk in U.S. agriculture and offer a critical evaluation of the current state of agricultural risk research and prospects for further improvements. We commend the contributors for fulfilling that purpose. Collectively, the chapters of this book provide a very useful assessment of the state of empirical research on agricultural risk. Many excellent insights are offered about weaknesses in current research and a number of insightful possibilities are suggested for further research.
In this paper, we propose an expanded version of the hybrid NKPC by incorporating the extrapolative price-setting mechanism in the backward-looking part. We assume that when firms set the price at time t, they use information on the price in period t - 1 plus a portion of change in prices between t - 1 to t - 2 (a partial error correction). Under this expanded setting, we explicitly derive both structural and reduced-form NKPCs. The empirical results show that the extrapolative component is strongly significant in explaining inflation dynamics. In addition, the expanded version of the hybrid NKPC exhibits a better empirical performance than the original hybrid NKPC proposed by Galí and Gertler (1999) in terms of various statistical criteria.
Calculation of profits has its own measurement problems such as identifying proper imputation methods for own inputs, appropriate type of costs to compute profits and the problems related to common costs. In the case of sugarcane, there is an additional price variable. Since most of the sugarcane production is for production of sugar, the price of sugar provides an indication of the price that the farmers might be able to receive. Therefore, sugar price is an additional variable that can be tried here. However, the actual price the product would fetch is known only after crop reaches the market, while the decision regarding total inputs to be used need to be taken much before. Due to this, the decision is governed by the expectations the farmers have, of the relevant price variable. Quasi-rational expectations are expectations obtained by relaxing some of the restrictions imposed by rational expectations.
The concept of rational expectations has played a hugely important role in economics over the years. Dealing with the origins and development of modern approaches to expectations in micro and macroeconomics, this book makes use of primary sources and previously unpublished material from such figures as Hicks, Hawtrey and Hart. The accounts of the 'founding fathers' of the models themselves are also presented here for the first time. The authors trace the development of different approaches to expectations from the likes of Hayek, Morgenstern, and Coase right up to more modern theorists such as Friedman, Patinkin, Phelps and Lucas. The startling conclusion that there was no 'Rational Expectations Revolution' is articulated, supported and defended with impressive clarity and authority. A necessity for economists across the world, this book will deserve its place upon many an academic bookshelf. © 2004 Warren Young, Robert Leeson, and William Darity Jnr. All rights reserved.
The paper is focused on design, specification and quantification a model of partial equilibrium in the pork meat vertical in the Czech Republic. Characterized within the analyzed relations in the commodity vertical will be demand-offer relationships on partial levels of the commodity chain on the basis of which the functional relations of the simultaneous model of the above-mentioned market will subsequently be specified. The quantified model enables the definition and description of the main determinants of the pork offer and demand. The data used was acquired from the Situation and forecast reports (MA CR), from the Annual reports on the state of agriculture (IAEI) and from the public statistics (CSO), for the period from 1995-2011. With regard to respecting the simultaneous relations, the model estimate was carried out by means of the two-level method of least squares with subsequent statistic-econometrical verification. The acquired model shows sufficient robustness for market analyses and possible simulation calculations.
This paper compares the accuracy of major commercial price forecasts for corn, wheat, soybeans, soybean oil, soybean meal,
cotton, live cattle, and hogs. The price-forecasting information in futures prices is evaluated by comparison. The results
among commercial forecasters are mixed, but futures prices perform relatively better on average although not universally so.
These results have important implications for operational risk management.
Argues the case for probabilistic forecasting instead of point forecasting. -J.Tarrant
Relationships between adaptive expectations, the exponentially weighted moving average, and optimal univariate statistical predictors are reviewed. Shows that the behavioural-based adaptive expectations are a subclass of both the exponentially weighted moving average and the ARIMA model. The applicability of the adaptive expectations model to 26 empirical price and quantity series is investigated. Numerous price series, while exhibiting the general form of the adaptive expectations did not have a coefficient of expectations within the originally hypothesized range. The behavior consistent with the model underlying these price series would be trend extrapolation rather than averaging.-from Author
Results on the relation between expectations of future demand and past realizations and expectations obtained from conditional log-linear probability models and from regressions among the underlying latent variables are compared for French and German firms over periods of several years. The conclusions from the two methods are found to be broadly similar. Systematic changes are found in both coefficients and thresholds for both countries which provide scope for further research.
There is widespread agreement that it is necessary to introduce into economics both dynamical relations and general interdependence. This is not a counsel of perfection or a manifestation of the desire for theoretical elegance and completeness. The most concrete, practical analysis is often vitiated by restrictive assumptions which ignore or ‘eliminate’ the elements of change and of interconnectedness. When two sectors of an economy are interdependent in some way (coupled, we may say), and when we have another than the null or trivial solution of no change, then it is quite inadmissible to discuss the one sector assuming the other unchanged. For, if the one does not remain constant, the other cannot either, by virtue of the coupling. Therefore to allow one sector to vary and keep the other constant would be to hold contradictory assumptions.
The difficulty of obtaining empirical coefficients of long-run economic relations stems from the fact that long-run equilibrium values of economic variables are unobservable. To overcome this difficulty, assumptions are usually made about the relationships between observed and the unobserved long-run variables. Such assumptions have led to distributed lag analysis. In an earlier paper I have shown that such an approach is likely to give erroneous results, for the adjustment process may not be consistent with the comparative statics solutions for the short-run variables. In the present paper, the earlier analysis is supplemented and it is also shown how the problem can be overcome and how the long-run coefficients can be estimated even though the long-run equilibrium values are unobserved. The basic deviation from other formulations of this subject is that adjustment equations are used to described only those movements of variables about which comparative statics has nothing to say. In this way, contradictions between comparative statics and ad hoc dynamic formulations are avoided.
A rapidly-growing literature on rational expectation modeling and testing is found in agricultural economics. The reviewed
studies do not offer a consensus regarding the verification or falsification of the rational expectation hypothesis in agricultural
markets. Small sample sizes and the low power of statistical tests in the presence of alternative expectation hypotheses contribute
to the variability in conclusions. An additional and confounding source of the variability is specification searching. With
a wide variability in specifications, divergent results are to be expected. Despite the lack of consensus, rational expectations
modeling and testing has improved our knowledge of both expectation formation in agricultural markets, and the processes of
agricultural market equilibrium and price determination.
This study investigates the rationality of pre-release expectations of experts concerning USDA Hogs and Pigs reports. The expectations are weak-form rational in that they are unbiased predictors of actual report values and the forecast
errors are not autocorrelated. In a test of strong-form rationality, all of the economic variables examined were not related
to the forecast errors. Thus, the evidence is that expectations of the Hogs and Pigs report are strong-form rational.
This article investigates empirical evidence on the structure of price expectations in the United States during the post-Korean War period. The study utilizes semi-annual data which describe price expectations for six months and twelve months ahead. The objective is to use these two sets of data to test some of the well-known expectational hypotheses. Incidental to this we determine whether expectations satisfy the rationality hypothesis, and we briefly consider the accuracy of the predictions.
According to the static theory of decision-making under uncertainty, the policy maker will take that action that maximizes expected utility. In the dynamic theory several consecutive periods play a role, each of which is characterized by a certain action. The policy maker will then choose a maximizing strategy (i.e., a rule according to which all successive actions are determined by the information which is available at the time when the action has to be taken). This note is confined to the action in the first period of such a strategy. It is shown that, under certain conditions, the first-period action of the strategy which maximizes expected utility is identical with that of the strategy which neglects the uncertainty problem by maximizing utility under the condition that all uncertain elements are equal to their mean values.
In order to explain fairly simply how expectations are formed, we advance the hypothesis that they are essentially the same as the predictions of the relevant economic theory. In particular, the hypothesis asserts that the economy generally does not waste information, and that expectations depend specifically on the structure of the entire system. Methods of analysis, which are appropriate under special conditions, are described in the context of an isolated market with a fixed production lag. The interpretative value of the hypothesis is illustrated by introducing commodity speculation into the system.
This article investigates empirical evidence on the structure of price expectations in the United States during the post-Korean War period. The study utilizes semiannual data which describe price expectations for six months and twelve months ahead. The objective is to use these two sets of data to test some of the well-known expectational hypotheses. Incidental to this we determine whether expectations satisfy the rationality hypothesis, and we briefly consider the accuracy of the predictions.
Having formalized the concept of learning and the evolution of beliefs in a specific example we now proceed to show what the
implications of learning for econometric practice are. Most of the concepts needed for this have now been defined, but some
further technical econometric definitions will prove helpful by facilitating precise description of the effects.
This paper tests whether quarterly data on hog farmers' sow-farrowing intentions released in Hogs and Pigs are rational forecasts of actual farrowings. The empirical results show that neither one- nor two-quarter-ahead intentions are rational forecasts. Econometric methods and the implications of the empirical results for the rational expectations hypothesis are also discussed.
The study's purpose is to measure the extent to which futures and option prices reflect the subjective price distribution of a subset of market participants, farmers, and grain merchandisers in Illinois. Findings suggest that in most instances the futures price is an appropriate proxy for expected price. However, volatilities implied by option premia usually overestimate the subjective variances of producers and merchandisers. These differences between individual and market expectations of variance are consistent with findings of overconfidence in the psychology literature and should be considered by analysts when making observations about hedging decisions and risk aversion. -Authors
Aggregate sow farrowing response to price risk is estimated where price risk is defined as the difference between expected price at decision time and realized price at acquisition or selling time. Asymmetric (unfavorable deviations) and symmetric (favorable and unfavorable deviations) forms of price risk are estimated utilizing cash and futures prices. Statistical results suggest that an asymmetric form of risk analysis is preferred to a symmetric form, for both cash and futures markets.
Market equilibrium dynamics of herd inventory management are derived for homogenous female populations. Short-run supply is backward bending in response to permanent changes in demand and is rising in response to transitory changes in demand. Increasing inventories are associated with high and falling prices and decreasing inventories with low and rising prices, but there is no market instability in this. These unusual intertemporal substitution effects follow from both rational expectations and appropriately formulated cobweb models and go part of the way toward explaining hog and cattle inventory cycles.
This paper provides an articulation of the theory of scoring rules that leads to a testable hypothesis about strategic behavior
under an improper rule. Subjects in a laboratory setting were first screened for linear utility in the range of rewards. Those
that passed this test were used as subjects in a probability forecasting experiment. Results suggest that theory holds when
subjects forecast over many periods, although inexperienced subjects may fail to exploit the dominant strategy in the initial
periods.
This paper presents a dynamic rational expectations equilibrium model for a given crop. The dynamic supply equation is derived from the farmer optimization problem; and the equilibrium movements of commodity price, production, and land allocations are solved analytically. It is shown that the observed dynamics of agriculture supply, which are usually explained and measured with the Nerlovian supply response model, can be explained and measured at least as well by the rational expectations equilibrium model. However, interpretation of the results is different, and the paper defines explicitly the dynamic supply elasticities and presents an econometric method for consistent estimators for the parameters.
Four hypotheses about the price-forecasting performance of live cattle and hog futures are tested using disaggregated data.
Live cattle futures are found to have inadequate forecasting performance for each hypothesis and do not provide better forecasts
than lagged cash prices. Live hog futures perform well for three hypotheses, but not when economic conditions are unstable.
Hog futures provide better forecasts than lagged cash prices. The analysis does not support the contention that these futures
markets are agencies for rational price formation.
This study investigates the empirical relationships between the aggregated elicited probability distributions from individual farmers on yields of three 1977 California field crops and their data‐based representations. The comparison suggests that for expected values, the ARIMA representations agree with the aggregated elicited distributions. However, for higher moments, the ARIMA processes do much poorer in representing the elicited distributions.
Cash cattle prices are found to be more accurate indicators of subsequent cash cattle price conditions than are the futures
prices for distant contracts. This apparent relative inability of futures prices for live beef cattle to reflect later spot
prices is becoming more pronounced over time.
The role that futures markets play in guiding inventories, through hedging, has been emphasized in economic literature. Historically,
futures markets first emerged for the annual crops that could be continuously stored (grain and cotton); hence inventory hedging
has been important from the outset. But forward pricing which was not attendant upon inventories has long been practiced,
and the more recent emergence of futures markets for non-inventory commodities dramatizes this fact. We show here that the
model of intertemporal price relationships differs for the two cases and provide evidence for selected commodities. The contrasting
implications for allocation and stabilization are also drawn.
The exponentially weighted average can be interpreted as the expected value of a time series made up of two kinds of random components: one lasting a single time period (transitory) and the other lasting through all subsequent periods (permanent). Such a time series may, therefore, be regarded as a random walk with “noise” superimposed. It is also shown that, for this series, the best forecast for the time period immediately ahead is the best forecast for any future time period, because both give estimates of the permanent component. The estimate of the permanent component is imperfect, and so the estimate of a regression coefficient is inconsistent in a relation involving the permanent (e.g. consumption as a function of permanent income). Its bias is small, however.
Cointegrated multiple time series share at least one common trend. Two tests are developed for the number of common stochastic trends (i.e., for the order of cointegration) in a multiple time series with and without drift. Both tests involve the roots of the ordinary least squares coefficient matrix obtained by regressing the series onto its first lag. Critical values for the tests are tabulated, and their power is examined in a Monte Carlo study. Economic time series are often modeled as having a unit root in their autoregressive representation, or (equivalently) as containing a stochastic trend. But both casual observation and economic theory suggest that many series might contain the same stochastic trends so that they are cointegrated. If each of n series is integrated of order 1 but can be jointly characterized by k > n stochastic trends, then the vector representation of these series has k unit roots and n — k distinct stationary linear combinations. Our proposed tests can be viewed alternatively as tests of the number of common trends, linearly independent cointegrating vectors, or autoregressive unit roots of the vector process. Both of the proposed tests are asymptotically similar. The first test (qf) is developed under the assumption that certain components of the process have a finite-order vector autoregressive (VAR) representation, and the nuisance parameters are handled by estimating this VAR. The second test (qc) entails computing the eigenvalues of a corrected sample first-order autocorrelation matrix, where the correction is essentially a sum of the autocovariance matrices. Previous researchers have found that U.S. postwar interest rates, taken individually, appear to be integrated of order 1. In addition, the theory of the term structure implies that yields on similar assets of different maturities will be cointegrated. Applying these tests to postwar U.S. data on the federal funds rate and the three- and twelve-month treasury bill rates provides support for this prediction: The three interest rates appear to be cointegrated.
This article is an attempt to determine whether firms can be assumed to behave as if they were using a rational inventory policy. A decision rule is deduced from a plausible model of a firm's cost structure and an attempt is made to see whether historical time series of firms' production, sales, and inventory data can be explained by such a decision rule.