This dissertation is comprised of three essays on drought risk, coping, and vulnerability. The first essay develops two methods for assessing household vulnerability: one measures ex ante vulnerability based on estimated income distributions, and the other measures ex post vulnerability based on household asset positions and reported responses in a severe drought year. Unlike most vulnerability measures, neither relies on repeated cross-sections of consumption data, which are difficult to obtain. Both measures are used to assess the vulnerability of a sample of rural Moroccan households, making for a unique, side-by-side comparison of an ex ante and ex post vulnerability measure. Households deemed vulnerable according to both measures are then compared to their resilient counterparts. Many drought shock measures treat risk management as a static decision. The second essay demonstrates how households can manage risk through intra-seasonal crop management choices and quantifies the significance of such dynamic risk management. A dynamic optimization model of wheat production is calibrated using survey data on yields and costs, as well as rainfall data from Morocco. The model is then used to simulate drought income shocks, first under the assumption that farmers manage their crops statically, and then under the assumption of dynamic, intra-seasonal management. Comparison of the two measures shows that ignoring dynamic risk management behavior significantly overstates drought shocks. Crop rotation, the strategic sequencing of crops, may drive the on-farm crop diversity observed in many areas throughout the developing world. The third essay quantifies the intertemporal productivity benefits rotation effects) that form the basis of crop rotations, using uncontrolled field data from Moroccan farms. Where rotations are practiced, ignoring rotation effects can lead to erroneous conclusions about other potential cropping motives such as avoiding risk, easing input constraints, and being self sufficient. Quantifying rotation effects is the first step in disentangling these many motives. A novel maximum likelihood specification that accounts for both sample selection and heteroskedasticity is developed. Though estimated rotation effects are mostly insignificant and, at times, counterintuitive, the exercise highlights the non-trivial gains from modeling both sample selection and heteroskedastic errors, and presents a simple method for doing so.

The effect of supplementing cows on pasture with a partial total mixed ration pTMR) containing different fat and protein sources on milk yield, fatty acid profiles, protein content, cheese yield, cheese textural and sensorial properties and the economic feasibility were investigated. Twenty-seven multiparous cows were allowed to graze on alfalfa pasture and were supplemented with pTMR containing: 1) dried distillers grains with solubles DDGS), 2) soybean meal ESB), or 3) fishmeal FM). The pTMR were fed to supply 50% of estimated energy requirements. There were no dietary effects on milk yield. The concentration of fat and protein in milk was greatest for FM and DDGS compared to ESB supplemented cows. The Brown Swiss cows had greater true protein and casein when fed DDGS compared with FM. Holstein cows produced greater true protein and casein concentrations when fed FM followed by DDGS and ESB. Milk from cows fed DDGS and FM had greater concentrations of C12:0, C14:0 and C16:0 in milk fat compared with ESB. The concentration of C18:0 in milk was least in milk from cows supplemented with FM followed by DDGS and ESB. The least concentrations of long chain polyunsaturated fatty acids were observed in milk from cows supplemented with FM. Dietary treatments did not affect the concentrations of conjugated linoleic acid in milk. The dietary treatments had no effect on the estimated and actual cheese yields Cheese from cows supplemented with FM had greater concentrations of saturated and monounsaturated fatty acids and lesser concentrations of unsaturated and polyunsaturated fatty acids. The typical effects of age on texture and melt profiles were observed, however, there were no dietary effects on textural attributes, sensorial and melt profiles. Based on average prices for DDGS, FM and ESB over the study period, 2008–2010, gross and net profit were greatest in cows supplemented with DDGS followed by cows on ESB and FM. This study indicates that supplementing cows on pasture with fat and ruminally undegradable protein could increase the concentrations of fat, protein, and casein in milk without compromising yield, other components, cheese yield, cheese chemical composition and cheese textural and sensorial properties. It is economically feasible to increase the healthful fatty acids through dairy cow dietary manipulation, especially when relatively lesser expensive dietary supplements such as DDGS are used.

This is a comprehensive study of the impacts of research and development in Philippine rice production. I examined the sources of rice production growth in the Philippines from 1996 to 2007 by estimating a translog production function using a generalized instrumental variable estimator. Using a production framework, I analyzed the contributions of conventional and non-conventional inputs, and residual total factor productivity to the production growth. Higher output growth was observed during wet and dry seasons of 2001-2006 and 2002-2007 compared to that of 1996-2001 and 1997-2002. Results indicate that non-conventional inputs such as irrigation, adoption of hybrid and third generation modern inbred varieties, attendance at rice production training sessions, use of high quality seed, and machine ownership were the main sources of production growth in these periods. Using a cost framework, I measured the contributions of public investments in R&D, extension, production subsidy, and irrigation in reducing the cost of rice production in the Philippines. I used the shadow share as a measure of marginal return to public investments in determining the need for further investments. I also decomposed the growth in total factor productivity of rice into scale economy, improvement in capacity utilization due to public investments, and rate of technical change. Results indicate that R&D has generated cost-savings and has improved productivity of rice. This implies that further investment in rice R&D is essential. I also found that investment in production subsidy is counterproductive which supports its phase-out. I also found inefficiencies in extension and irrigation investments. This suggests that reforms in the current extension system and a reorientation of the irrigation development strategies should be implemented in order to reap the potential benefits from these investments. Finally, I used the CERES-Rice simulation model of the Decision Support System for Agrotechnology Transfer in investigating the nature of shift in individual rice supply when a hybrid rice variety was adopted. Using the DSSAT model, I determined the yield responses of hybrid and inbred rice varieties to different levels of nitrogen, potassium, and water applications. I estimated hybrid and inbred yield response functions using the DSSAT-generated yield data. Using the estimated coefficients, I recovered the profit-maximizing demands for nitrogen, potassium and water. Then, I derived the supply functions of hybrid and inbred rice by substituting these profit-maximizing demands back to the yield response functions. Results show that adopting the hybrid rice variety would lead to a pivotal and divergent shift in the individual supply. While far from being used in an aggregate scale, the method presented is a step toward a better measurement of benefits from adopting a specific technology and returns to R&D in general.

In Chapter 1, we study an intervention in which the Peruvian government provided public payphones to 6,509 rural villages that did not have communication services before. We show that the intervention timing was orthogonal to potential outcomes and exploit it using a panel of treated villages. Findings suggest increases of 16 percent in prices received by farmers for their crops, and a 23.7 percent reduction in agricultural costs. This income shock has been translated into a reduction in child market and agricultural work of 13.7 and 9.2 percentage points respectively. Findings are consistent with a dominant income effect in child labor demand. In Chapter 2, we exploit a randomized intervention directed towards enhancing local governments efficiency in three regions of rural Russia Adyghea, Penza and Perm) at the onset of a major decentralization reform. We find that satisfaction levels with decentralized services increased only in the region with relatively higher ex-ante experience with decentralized and participatory decision making Penza). Moreover, we find that settlements with high pre-treatment accountability levels were differentially benefited by the intervention. Our findings suggest that short-term interventions do not translate into higher satisfaction with local public services. Rather, it appears that enhancing local managerial efficiency in delivering public services is a long-term process and that intensive interventions translate into higher satisfaction provided to local governments with relatively longer institutional experience and higher levels of accountability. In Chapter 3, we use the timing of cell phone coverage in Peru as an exogenous shock to investigate the effects of phone coverage on several measures of economic development. We exploit a unique dataset drawn from information of private cell phone operators regarding the location, date of installation and technical characteristics of their towers from 2001 through 2007. We then merge this information with national household surveys spanning the same period. Estimates suggest an increase of 7 percentage points in the likelihood of self reported cell phone ownership after getting coverage, an increase of 7.5 percent in yearly household expenditures after coverage, and a 13.5 percent increase in the value of assets.

This study analyzes issues regarding the risk that crop and livestock production face with respect to price variation. Producers generally face an inelastic demand for their products, while their supply may encounter different unexpected production shocks—generating an increase in price variability. This price risk is compounded when it involves varying prices of production inputs, as in the case of livestock feed. The first study addresses crop production price risk mitigation via crop insurance—specifically crop revenue insurance contracts, by investigating the efficiency benefits of incorporating a model which captures the natural inverse relationship between crop prices and yields. The study begins by considering a parametric distribution which takes into account asymmetry and fat tails to model crop prices, in lieu of empirical evidence of prices having positively-skewed distributions and fatter tails than the conventional characterization obtained from a Log-normal distribution. Subsequently, a copula method is proposed to account for the natural inverse relation between crop prices and yields. Crops considered are corn, soybean, and wheat which form part of livestock feed. Copula methods have been used for managing risk in the financial sector, and results from this study show operational efficiency gains over present crop revenue insurance contracts. The next chapter begins by extending a multivariate time-series dynamic correlations model containing different correlation regimes with regime switching being governed by a Markov chain, via constant transition probabilities. Extension of the Regime Switching Dynamic Correlations (RSDC) model (Pelletier, 2006), permits identification of underlying economic fundamentals affecting the dynamic interrelationships between markets, by incorporating state dependent transition probabilities in the regime switching process. The state dependent transition probabilities contain fundamental economic variables related to the process. The study then applies the developed model to empirically analyze the impact of increased corn demand from ethanol production—on the dynamic interrelationship between corn, soybean and cattle prices, including spillover effects from market frictions. Results identify specific periods in which the correlation levels among the markets are impacted by the surge in corn consumption conditions. Risk spillovers from one market to another are determined, and their impacts on market interrelationships are discussed. The final chapter makes use of a co-integrated vector autoregressive model to further gauge the dynamic relationships between grain and cattle markets, in lieu of the boost in corn demand from ethanol mandated production. In addition to corn and soybean prices, grain sorghum (milo) and wheat—which also serve as feed—are taken into account along with feeder and live-cattle markets. Results corroborate some of the previous findings regarding the dynamic interaction between grain and cattle markets, especially considering the impact on these market relationships during the period of increased corn demand from ethanol consumption.

The customizable area whole farm insurance CAWFI) is proposed and evaluated as a possible whole-farm revenue protection design for crop farms. The evaluation included assessing appropriate weight, optimal scale, and optimal coverage level. The optimal CAWFI was tested against no insurance program, 90% farm level whole farm insurance 90% CFWFI), and CAWFI with scale and coverage level as provisioned in GRP product restricted CAWFI) in representative farm in Kansas, North Dakota, Illinois, and Mississippi. The study finds the optimal CAWFI outperforms no insurance program and restricted CAWFI asserting that CAWFI is a workable insurance model and relaxing restriction on scale and coverage level can increase expected utility of farmers. The optimal CAWFI results in a risk reduction roughly equal with 90% farm-level whole-farm insurance though the expected indemnities in it are at least three fold.

In agricultural regions like the Corn Belt, urbanization tends to take place at the expense of farmland. Dealing with the loss of arable area, increased farmland prices, as well as positive and negative externalities related to the proximity to urban development, leaves farmers with two primary choices: switch to higher value production or sell farmland for development. Over the past several decades, the area expansion of American cities has outpaced population growth due to urban sprawl, which is characterized by low-density residential developments in suburban areas and the urban-rural fringe. This process fragments the periurban agricultural landscape as it progresses outwards. A key aspect of this dissertation is to include metrics of size and dispersion as critical determinants of the returns to agricultural production. We examine the crop allocation decisions of periurban farmers in the extended Indianapolis metropolitan area by estimating a system of simultaneous equations while also allowing for residual spatial autocorrelation. We specifically show that the creation a farmers market fosters the conversion of nearby farmland to specialized crops. Finally, we use state-of-the-art spatial panel techniques to characterize the determinants of the development of farmland in southeast Wisconsin between 1963 and 2000. Our empirical results indicate that small and dispersed patches of agricultural land use are associated with a higher prevalence of high-valued crops and accelerated farmland loss.

Since 1999, China has spent RMB 50 billion (about $7 billion) to implement the “Grain for Green” program, the largest land retirement program in the developing world. From 1999 to 2003, over 7.2 million hectares were retired under the program. However, many farmers report that they did not receive compensation, as promised under the program in exchange for planting trees on agricultural land. This paper examines the impacts of subsidy payment shortfalls, delayed payments and program uncertainty on farmers’ participation in the program. A stylized reputation game model is used to explain how village-level corruption (subsidy underpayment), along with uncertainty regarding the likely longevity of the program, will discourage farmers’ participation in the program. Panel data are used to estimate the impact of previous payment shortfalls on subsequent land conversion. A strong negative impact is found. Village level payment information is used to identify both the impact on program participation of corruption and the impact of policy uncertainty regarding the program’s longevity. Further investigation reveals that variation in payment realization and program participation appear to be driven by household specific characteristics, such as being a Communist Party member or working for the local government. These results provide useful guidance on how to make conservation efforts more effective and cost efficient in developing countries.

In this dissertation I address i) a large, but until now not quantified, barrier to adopting certain agricultural technologies facing cereal-livestock farmers, and ii) a largely overlooked benefit to rainfed farmers of adopting one of these technologies. While the three essays in this dissertation focus on no-till agriculture, the theory and empirics I present have broader applications. In the first essay I use a household model to estimate the shadow value of crop stubble, a nonmarket byproduct of cereal production. Stubble is an important source of livestock feed, and the full opportunity cost of adopting no-till, or of switching from cereal to cash crops, must include the value of stubble forgone under these technologies. Using household data from Morocco I find that in a normal rainfall year stubble makes up one-third of the total value of feed used by farmers in the sample and over one-fifth of the total value of cereal production– more than the cost-savings offered by no-till. In the second essay I address the implications of common stubble grazing on property rights enforcement and technology adoption. The introduction of a technology such as no-till that presents an alternative use for stubble which could increase its value enough so some farmers enforce property rights over the resource, making it more costly for others to forego using stubble as feed in order to adopt the technology. I present a theoretical model and a simulation calibrated with data from Morocco to explain the emergence of property rights enforcement and interdependence of technology adoption between farmers. In the third essay I demonstrate that rainfed farmers facing the risk of catastrophic drought extract a quasi-option value from technologies that delay input requirements, which I argue include no-till. Using household data from Morocco I investigate the timing of crop abandonment. I then present a two period simulation model that demonstrates how no-till generates a quasi-option value to flexible farmers under drought risk. I find that under the status quo 14 percent of the total cost-savings of using no-till is derived from quasi-option value.

The study area of this dissertation is the Appalachian state of West Virginia, where pasture-based livestock has traditionally dominated the states agricultural production sector. Enhanced production risk has been identified as one of the key risk factors in grass fed beef production. This study aims to look into various risk management options that are available to grass-fed beef producers. One such management option is the various livestock insurance and rangeland, forage and grass land protection policies recently introduced and marketed by the Risk Management Agency RMA) of USDA. The Livestock Risk Protection Plan LRP) has been available to West Virginia cattle producers since summer 2006. This plan is uniquely aimed towards price protection. At the same time, two types of rangeland forage and pasture land protection policies have also been introduced by RMA, namely rainfall index and vegetation index based protection policies. These policies may help mitigate production related risk. A brief Internet-based survey was conducted in early summer 2009 of various grass-fed beef producers who market their product electronically in neighboring states including West Virginia, Virginia, Pennsylvania, Kentucky, and Maryland to understand their perception of risk related to grass-fed production. It was found that drought or lack of rainfall is a major concern in their production related activities, an issue that further justified the need for this study. The latter consists of three distinct, but interrelated, essays, all oriented toward a better understanding of the causes, effects, and management of production risk in pasture-beef production settings. Stochastic dominance was the main tool used in the first and second essays to analyze various risky alternatives. In the first essay, stochastic dominance analysis was used to understand LRP and price risk as may be faced by a grass-fed producer in West Virginia. It was found that in the current scenario, a high basis exists between the AMS 5 market selling price on which the indemnity payouts are based) and the local cattle auction markets of Virginia and Pennsylvania. Due to this high basis, this LRP may not be suitable to these producers as offered currently. The second essay deals with production risk and the rainfall index based protection policy of RMA. It was found that though this policy indeed helps to mitigate a certain part of production risk, managers of pastureland should have a thorough understanding of the nature of indemnity payouts. However, this insurance is not yet available in West Virginia. Hence, the study was conducted with Pennsylvania hay trial plots, using data provided by the WVU Agronomy Department. As discussed earlier, in our e-mail based survey, it was found that drought or lack of rainfall is the major concern for most producers in Appalachia. Accordingly, in the third essay, a unique rainfall/precipitation based option contract was structured to assist businesses better manage rainfall/precipitation related risks. This unique precipitation based call/put option can be exploited by relevant businesses who suffer loss from either too little or too much precipitation. It was further found that there are indeed interested players in the capital market e.g. Goldman Sachs commodity risk managementï¼› Phibro commodities trading firmï¼› etc.) who are willing to underwrite the risk and provide such rainfall call/put) risk management options to a broad range of businesses including grass-fed producers. This rainfall call/put, when made available through the capital market underwriter) either as over the counter OTC) or exchange CME) traded, would provide yet another weather related risk management option to businesses in West Virginia affected by too much or too little rain fall/precipitation.