Tradeoffs and Resource Allocation Effects for Alternative IS Management Policies Thomas Wahl, Zishun...
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Tradeoffs and Resource Allocation Effects for Alternative IS Management Policies Thomas Wahl, Zishun Zhao, & Ricardo Diaz IMPACT Center and School of Economic Sciences Washington State University www.impact.wsu.edu
Tradeoffs and Resource Allocation Effects for Alternative IS Management Policies Thomas Wahl, Zishun Zhao, & Ricardo Diaz IMPACT Center and School of Economic
Tradeoffs and Resource Allocation Effects for Alternative IS
Management Policies Thomas Wahl, Zishun Zhao, & Ricardo Diaz
IMPACT Center and School of Economic Sciences Washington State
University www.impact.wsu.edu
Slide 2
The Rest Of The Team Preston Andrews, Horticulture Jan Busboom,
Animal Science Ron Mittelhammer, Economics Ray Huffaker, Economics
Michael Livingston, ERS
Slide 3
Motivation Agricultural production is a complex and dynamic
process with an evolving productive stock Changing demographics due
to shocks BSE, FMD, coddling moth, Long-lasting effects of these
shocks Different effects on various participants Get the biological
process right and then add the IS shocks and policies
Slide 4
Objectives Develop a modeling framework that: Can be used to
measure effects on social welfare from IS Is general enough to
accommodate different animal and plant species Can establish the
linkage between economic loss and risk management policies Will
generate optimal resource allocation schemes for alternative IS
management policies
Slide 5
Model Highlights Two bio-economic models developed Animal Pest
(Livestock model) Plant pest (Perennial fruit model) www.nny.org
www.wsu.edu
Slide 6
Model Highlights Inventories are differentiated by age Demand
system AIDS Substitution effects Money-metric welfare measure
Important IS pathways endogenized Flexibility in accommodating
various expectation schemes
Slide 7
Non-Feed Fixed and Variable Costs Feed Price Feed Cost Nutrient
Requirement Sub-Model (Cow) Expectations Profit Maximization Info
available Expected price Constraints Solution Price of Imports
Initial Breeding Stock and Feeders Import Costs Expected Revenues
Breeding (Mature Female) Offspring(M) Offspring(F) Feeders Mature
Animal Slaughter Average Slaughter Weight of Cows Non-fed Meat
Finished Animal Slaughter Fed Meat Retention Feeder Imports
Breeding Animal Imports Culling Breeding Stock Culled Feeders
Culled Mature Females Feedlot Optimization Nutrient Requirement
Sub-Model (Feeder) Fixed and Variable Costs Expected price Optimal
Slaughter Weight Imports World Beef Market Domestic Beef Market
Domestic Prices World Prices Exports Livestock Model
Slide 8
Orchard New PlantingsFruit production FruitsExports World
Market Domestic Market Border Control Low-production blocks removal
Imports Profit Maximization ExpectationsInfo available Expected
prices Domestic RevenueExport Revenue Interest and Depreciation
Rates Capital CostLabor CostMaterial Cost Wage RatesMaterial Prices
Planting Cost Removal Cost ConstraintsSolution Perennial Fruit
Model
Slide 9
IS Introduction and Dissemination Production decisions in the
presence of an invasive species Non-susceptible inventories Immune
inventories Susceptible inventories Affected (host) inventories
Inventory groups determined by the dynamics of dissemination Random
nature of introduction and spread
Slide 10
Contact Vaccination IS Introduction and Dissemination (e.g..
livestock) SusceptibleImmuneNon-Susceptible Introduction Hosts
Susceptible ImmuneNon-Susceptible Hosts Death and Depopulation
Slide 11
IS Introduction and Spread Establishment and spread
Preventionreducing the probability of establishment and/or number
of hosts Controlincreasing the probability of eradication
Slide 12
IS Introduction and Dissemination Introduction and eradication
are random variables with a geometric distribution
Preventionreducing the probability of establishment
Controlincreasing the probability of an IS being detected and
eliminated
Slide 13
Policy Implications Prevention measures Marginal cost among
measures equal Positive probability of establishment Eventually an
IS becomes established Prolong interval between events Monitoring
and emergency response
Slide 14
Policy Implications Tradeoff between prevention and control
Resource use Fast-spreading, hard-to-eliminate species Preventing
less costly Costly-to-detect, slow-spreading species Control less
costly Confidence in government agencies Producers perception of
susceptibility will change probability of becoming affected
Slide 15
Livestock Model Implementation Annual beef production model
with 9-year reproductive life Feeders go through backgrounding and
a fixed ration feeding program Growth and body composition of
feeders predicted using NRC nutrient requirements Quality and yield
grade predicted to fit the marketing system grid Linear search to
determine the optimal slaughter point
Slide 16
Livestock Model Implementation Demand for both fed beef and cow
beef Inventory updatingnave expectations in unit profitability with
partial adjustment Unit profitability as a proxy for capital value
of cows
Slide 17
Simulated Scenarios Assumed scenarios to test the validity and
stability of the model One-time 30% reduction in breeding herd
representing a dramatic depopulation 15% death rate in the breeding
herd representing an epidemic 100% increase in the feed cost
representing feed regulation 100% increase in breeding cost
(maintenance cost of cows)
Slide 18
One-time 30% Inventory Reduction
Slide 19
Death Rate Increase to 15%
Slide 20
100% Increase in Feed Cost
Slide 21
100% Increase in Breeding Cost
Slide 22
Simulation of FMD w/o Intervention Assuming no treatment and
full recovery Dissemination rate of 4 herds/week 2% death in mature
cattle and 20% death in calves Normal demand continues
Slide 23
FMD Scenarios With Normal Demand
Slide 24
Progress of the Perennial fruit model A simulation model for
apple production is being implemented Increasing marginal cost is
assumed Formulated as a mixed complementarity problem Runs of a
preliminary version show stable and reasonable solutions
Slide 25
Summary and Conclusion Dynamic general equilibrium framework
captures short- and long-term effects Linkage between the economic
loss and the risk management policies Cost-benefit analysis Optimal
resource allocation Validity and stability demonstrated
Slide 26
Unresolved Issues and Possible Extension Welfare measure for
the producers A simulation model incorporating all livestock
production Common diseases Substitution effects A livestock model
including Canada, the US, and Mexico where all the live trade
occur
Slide 27
Conference Papers Zhao, Zishun, Thomas Wahl, and Ricardo Diaz.
Modeling the Effects of Alternative Invasive Species Management
Policies on livestock Production. Selected long paper, AAEA 2004,
Denver, CO. Zhao, Zishun, Thomas Wahl, and Ricardo Diaz. Modeling
the Impacts of Alternative Invasive Species Management Policies on
Perennial Fruit Production and Consumption. Selected paper, WAEA
2004, Honolulu, HI. Daz, Ricardo, Thomas Wahl and Zishun Zhao. The
Economic Implications of Invasive Species in International Trade:
The Chile US Fresh Fruit Market. Paper Presented to ASCC, PECC
Trade Forum LAEBA Conference 2004, Via del Mar, Chile
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Tradeoffs and Resource Allocation Effects for Alternative IS
Management Policies Thomas Wahl, Zishun Zhao, & Ricardo Diaz
IMPACT Center and School of Economic Sciences Washington State
University www.impact.wsu.edu