Producer behavior and the distribution of potential long run consequences in the agricultural market Public Deposited

http://ir.library.oregonstate.edu/concern/graduate_thesis_or_dissertations/8049g7942

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  • This study is directed toward an investigation of the longer term aggregate consequences that arise from producer behavior in a production environment characterized by risk and uncertainty. In particular, the papers included herein examine circumstances under which individual actions may result in adverse long term consequences in the aggregate market, even though they are based on rational decision-making from the producer's point of view. The research is conducted in two distinct components, resulting in the presentation of two separate manuscripts. In the first paper a single product market model is developed with producer actions characterized by risk averse behavior. Individuals are assumed to maximize the expected utility of profits according to a mean-variance specification. Using an analytical framework, it is determined that risk averse actions can increase aggregate risk levels once market adjustment is completed. Aggregate market risk is measured by the change in the expected value and variance of consumers' and producers' surplus. Market effects are found to depend on the relative elasticity of demand and the price expectation formulated by the producer. The second paper explores the issue of declining soil productivity from a social perspective. Using a simulation model developed for a generalized agricultural market, the potential long term impacts of erosion on crop prices and on resulting measures of social welfare are examined. It is found that in the aggregate producers with erosive land are generally better of without erosion control than with erosion control, at least for the first few generations. In the long run however, these producers are significantly worse off as the effects of erosion outweigh any technology improvements.
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