Restructuring of electric power markets is proceeding across the United States and in many other nations around the world. The performance of these markets will influence everything from the prices faced by consumers to the reliability of the systems. The challenges of these changes present many important areas for research. For much of the northeastern United States, restructuring proposals include, at least for the short term, the formation of a single-sided auction mechanism for the wholesale market. This research uses experimental methods to analyze how these markets may function. In the experiments, the two basic uniform price auction rules are tested under three different market sizes. Early experimental results suggest the commonly proposed last-accepted-offer auction works well, but market power could be a real concern.

Recent attempts to test the validity of the contingent valuation method have relied on laboratory-type experiments. In these experiments, willingness to pay responses in hypothetical choice experiments are compared with responses from choice experiments requiring actual payments. Often evidence of hypothetical bias is found. Critical for these experimental tests of hypothetical surveys is that the methodology used to elicit willingness to pay from subjects in the real-payment experiment be demand revealing. If it is not, then differences in responses to hypothetical and real valuation questions could be due to free-riding in the real-payment survey and not due to hypothetical bias in the hypothetical survey. This paper reports on experiments that implement a theoretically incentive-compatible revelation mechanism (a closed referendum) to elicit responses to valuation questions in both hypothetical and real experiments. As in earlier studies, evidence of an upward hypothetical bias is found.

During the last two decades, product labeling has become an increasingly used policy tool, particularly with respect to the provision of health and environmental information. Theory holds that the flow of information among market participants plays a critical role in the efficient operation of markets. This paper explores the role of product labeling policy in ameliorating two potential market deficiencies: asymmetric information and costly search behavior. Practical considerations for the design and implementation of labeling policy and of labeling research are explored.

Consumers are increasingly considering information on the safety and process (how foods are produced) attributes of food in making their buying decisions. Producers, processors, and retailers may choose voluntary labeling of these attributes, may be required to label by government regulations, or may use a combination of these approaches. The market effects depend on consumer perceptions of the attributes, the benefits and costs of labeling for companies, and the goals of government policy. These effects are illustrated through a discussion of labeling of foods that are produced with the use of biotechnology (genetically modified organisms) or that are organically grown.

The Nutrition Labeling and Education Act (NLEA) prohibits health claims for foods containing more than a certain amount of fat per serving. This disqualifier level eliminates health claims for cooking oils since these products have approximately 14 grams of fat per serving, above the acceptable threshold. However, a number of scientific studies indicate that, from a heart-health perspective, cooking oils lower in saturated fat and higher in monounsaturated fats are superior to other oils. Prior to the NLEA, firms actively competed on this basis, with manufacturers of cooking oils making explicit heart-health claims in print advertising and labeling. This study utilizes supermarket scanner data from twenty stores to examine the type of cooking oil chosen by consumers. The results indicate that after implementation of the NLEA, consumers shifted purchases toward cooking oils higher in saturated fat and lower in monounsaturated fat. This study does not address whether consumers changed their total consumption of cooking oil after implementation of the NLEA.

Cost-effectiveness is an important consideration in evaluating choices for meeting environmental quality objectives. Estimated crop yield response functions and the associated groundwater-nitrate pollution production functions were used to evaluate the optimal N fertilization and on-farm abatement costs for alternative cropping systems, with management choices at both the intensive and extensive margins. The cost-effective corn production system, which meets the Health Canada standard for nitrates with the highest returns ($278 ha–1) and lowest on-farm abatement cost ($248 ha–1), was a four-year corn-corn-soybean-wheat rotation under conventional tillage. At contaminant limits above the Health Canada standard, the cost-effective wheat cropping system shifted from a soybean-wheat rotation under no-tillage to a corn-soybean-wheat rotation under no-tillage.

This study compares two methods of estimating a reduced form model of fresh tomato marketing margins: an econometric and an artificial neural network (ANN) approach. Model performance is evaluated by comparing out-of-sample forecasts for the period of January 1992 to December 1994. Parameter estimates using the econometric model fail to reject a dynamic, imperfectly competitive, uncertain relative price spread margin specification, but misspecification tests reject both linearity and log-linearity. This nonlinearity suggests that an inherently nonlinear method, such as a neural network, may be of some value. The neural network is able to forecast with approximately half the mean square error of the econometric model, but both are equally adept at predicting turning points in the time series.

An empirical analysis reveals that states with more highly educated populations have better environmental conditions, after controlling for income, population density, and industrial composition. The strategy of raising human capital stocks to maintain or improve environmental quality is proposed as a complement, if not an alternative, to direct government intervention, which consists of command and control, market incentives, and moral suasion. Under this approach, general education becomes the control variable that guides economic behavior in a manner consistent with long-term environmental sustainability.

Using the case of Canadian dairy industry, this paper investigates the farm level effectiveness of generic advertising in two vertically related markets under government regulation and oligopolistic power. Comparative static analysis indicates that an increase in advertising may either increase or decrease the farm level profit when the processing industry is oligopolistic. When advertising leads to an increase in the farm level profit under the oligopolistic processing industry, the size of this effect may be more than, less than, or the same as that under perfect competition. Specifications of the retail demand function play an important role in determining both the direction and magnitude of the effect of advertising on the farm level profit under the oligopolistic processing industry. The simulation results of the Canadian butter industry illustrate that the magnitude of the bias caused by an erroneous assumption regarding the market structure could be significant.

This paper considers the treatment of “don't know” (DK) responses to referendum contingent valuation questions. The determinants of DK responses are empirically analyzed using a data set from a survey of old growth forest valuation. It is found that DK respondents possess unique characteristics that differentiate them from Yes and No respondents. These findings do not support the most common treatments of DK responses that are currently used. Responses to an open-ended question included in the survey are used to provide further insight into the preferences of DK respondents.

This paper evaluates the economic and environmental tradeoffs at watershed scale by incorporating both economic and environmental risks in agricultural production. The Target MOTAD model is modified by imposing a probability-constrained objective function to capture the yield uncertainty caused by random allocation of farming systems to soil types and by introducing environmental targets to incorporate environmental risk due to random storm events. This framework is used to determine the tradeoff frontier between watershed net return and sediment yield and nitrogen concentration in runoff in Goodwater Creek watershed, Missouri. The frontier is significantly affected by environmental risk preference.

A structural time series model is used to estimate the supply response function for broiler production in the United States using quarterly data and a structural time series model. This model has the advantage of expressing trend and seasonal elements as stochastic components, allowing a dynamic interpretation of the results and improving the forecast capabilities of the model. The results of the estimation indicate the continued importance of feed costs to poultry production and of technology as expressed by the stochastic trend variable. However, seasonal influences appear to have become less important, since the seasonal component was not statistically significant.

Simulations are widely used to teach economic principles and to provide students experience in decision making. This paper describes and evaluates a simulation exercise that helps students understand public policy impacts in a multistage market. Student teams of producers, marketers, and processors use information on costs and demand in negotiations to determine prices and quantities. Selected public policies such as marketing orders with price discrimination are implemented and analyzed. The simulation exercise improved student understanding of marketing orders and policy impacts on prices, quantities, and profits in a multistage market. Financial outcomes in the simulation were related to student learning as evidenced by exam scores.

This paper estimates welfare losses in thirty-eight U.S. food and tobacco industries at the four-digit SIC level, then relates such losses to market structure and conduct variables to identify the welfare loss determinants. Empirical findings indicate that these losses are higher in markets characterized by high export intensity, high advertising expenditures, economies of scale, mergers and acquisitions, and market concentration. In addition, losses are larger in industries that sell finished consumer products and face lower import competition.

Recent studies have investigated the efficiencies of policies that use several policy instruments simultaneously (for example, a policy that uses a production subsidy combined with a production quota). Several studies of very specific cases find that optimal combination of two policy instruments is more efficient than optimal independent use of either. In this note we demonstrate using set theory and maximization theory, that all such specific results are examples of a more general result, which is that by combining m instruments efficiently, a government can always be at least as efficient as when using a subset of those m instruments. This result holds for any of the several definitions of “efficiency” in the literature.

Stochastic simulation and generalized stochastic dominance are used to compare the risk-return properties of the Chicago Mercantile Exchange feeder cattle futures contract with those of the feeder cattle put option contract. Cash marketing, futures, and option strategies are analyzed for four backgrounding systems common to the mid-south region of the United States. The results show that at-the-money put option strategies dominate corresponding futures contract strategies according to generalized stochastic dominance. This implies that at-the-money put option contracts are superior to feeder cattle futures contracts for risk-averse backgrounders in the mid-south region of the United States.