TY  - JOUR
AU  - LaFrance, Jeffrey
AU  - Pope, Rulon
AU  - Tack, Jesse
TI  - Risk Response in Agriculture
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16716
PY  - 2011
Y2  - January 2011
DO  - 10.3386/w16716
UR  - http://www.nber.org/papers/w16716
L1  - http://www.nber.org/papers/w16716.pdf
N1  - Author contact info:
Jeffrey LaFrance
Department of Economics
Room E953, Building 11
Monash University
Clayton 3800 VIC Australia
E-Mail: jtlafrance@wsu.edu

Rulon Pope
Department of Economics
Brigham Young University
Provo Utah 84602
E-Mail: rulon_pope@byu.edu

Jesse B. Tack
Department of Agricultural Economics
Kansas State University
342 Waters Hall
Manhattan, KS 66506
E-Mail: jtack@ksu.edu
M1  - published as Jeffrey LaFrance, Rulon Pope, Jesse Tack. "Risk Response in Agriculture," in Joshua S. Graff Zivin and Jeffrey M. Perloff, editors, "The Intended and Unintended Effects of U.S. Agricultural and Biotechnology Policies" University of Chicago Press (2012)

M3  - presented at "Agricultural Economics Conference", March 4-5, 2010
AB  - Crop production is subject to supply shocks, and both expected and realized outputs as well as output prices are unknown when inputs are chosen. The process by which producers form expectations is difficult to model, especially when working with aggregate data. We present a necessary and sufficient condition on cost and technology to allow variable input demand equations to be specified as functions of input prices, quasi-fixed inputs, and total variable cost. These all are observable when inputs are committed to production, so that ex ante demands can be estimated with observable data. A flexible, exactly aggregable, and economically regular model of variable input demands is derived and applied to aggregate U.S. agricultural data for the period 1960-1999. We use the empirical results of this model to aid in the specification of a dynamic life-cycle model for agricultural producers facing output and output price risk, with investment in an off-farm, conditionally risk free asset, risky financial assets, savings, consumption, and agricultural production opportunities. This framework admits a coherent, structural, econometric model of input use, output production, savings, investment, and consumption for agricul-ture. We apply this model to U.S. data for the period 1960-1999. Ongoing work focuses on updating the data set to the 21st century and applying both components of the model at the state-level.
ER  -