The federal government has developed a large number of programs To insure various “specialty crops”' over the last two decades, particularly in California. If these new insurance programs have affected either producer or consumer welfare, then we would expect to see this reflected in output and prices. We find that the supply of and demand for insurance for tree crops is much larger than for non-tree crops. Crop insurance has a small but significant negative effect on prices of insured crops. This last finding is consistent with the view that demand for such highly disaggregated commodities is likely to be highly elastic. A consequence is that crop insurance for these specialty crops has little benefit for consumers, even when it generates a large supply response.

Publications: Ligon, E. 2011. "Supply and Effects of Specialty Crop Insurance", NBER Working Paper 16709.

Under the U.S. Special Nutrition Program for Women, Infants, and Children (WIC) program, three major infant formula manufacturers compete for the supply contracts.eTo explain the striking differential between contracted WIC price and non-WIC price, we propose a spillover model where winning the WIC contract gains non-WIC market share. We use store level scanner data and exploit WIC contract changes to test the model predictions and show how a WIC contract change affects the market shares of the winner and other firms. We also find winning the contract does not affect the actual (not estimated) retail price markup

Specific Objectives of the Project

The overall objective of the proposed research is to develop a detailed, practical, quantitative understanding of the economic consequences of Pierce's disease and alternative management strategies.More specific objectives are to quantify the economic impact of the disease, to evaluate alternative management strategies including alternative research investments, and to guide policy decisions, including research priorities. To pursue these objectives we propose to develop an economic model of the California wine and wine-grape sector that can be used to simulate market outcomes under scenarios with varying prevalence of Pierce's disease and alternative technologies and policies. We can thus assess the economic consequences of these alternative technologies and policies for various stakeholder Groups. Our model will be designed with a view to using it to assess the benefits from alternative types of new technologies that might be developed from new research investments, as well as alternative management strategies based on currently available knowledge and technology.

Summary of Results

We address economic questions related to Pierce's Disease (PD) by developing a model of the supply and demand for California wine grapes. Drawing on advice from scientists who study the disease, combined with information gleaned from interviews with vineyard managers, we have modeled the problem of the Blue-Green Sharpshooter (BGSS) in Northern California, and the Glassy-Winged Sharpshooter (GWSS) in Southern California, the main vectors of PD in wine grapes. The results from this work have been incorporated into a multi-year, multimarket supply and demand simulation model of regional wine grape production in California. This model will be used to evaluate the impact of alternative PD/GWSS management strategies and the likely benefits from investments in alternative R&D projects related to the management of PD/GWSS. Research products from this project include graduate student orals, prospectus, and dissertation essays, and several conference papers and posters. Work for formal publication is underway.

Specific Objectives

The purpose of our research was to examine and quantify the pricing and promotional activity of two major US supermarkets chains, Safeway and Albertsons.

Project Report

We compiled weekly data for over one year on nearly every product sold in 15 Safeway stores and nine Albertsons stores throughout the U.S., with nearly all of the stores falling west of the Mississippi River. The data include prices and, when applicable, promotions. We estimated econometrically the principal determinants of prices, promotional frequency, and promotional depth across the western United States. We also described and quantified the extent to which Safeway and Albertsons compete with one another in prices, promotions, and product offerings. We have also found important new results on the interactions between national brands and the chains' private label products that counter conventional wisdom regarding these interactions. This work is all part of Volpe's dissertation research. A complete draft of the thesis has been completed and revisions are underway.

The project lead to the development of a stochastic dynamic programming algorithm for operation of a groundwater storage facility. The features of the program allow for spatial and temporal arbitrage. That is, the groundwater storage facility connects two parallel canals,and has the capacity to store significant amounts of water for several years. The model is solved using Approximate Dynamic Programming (Powell, 2007).

Publications, Working Papers, or Reports Resulting from the Project:

“The Value of Groundwater Storage with Spatial and Temporal Arbitrage.” With Newsha Ajami and David Zilberman. “Economic Value of Improved Water Forecasts.” With Newsha Ajami and George Hornberger. Water Resources Research (2009): revise and resubmit.

This study assesses the economic viability and implications for water and cropland allocations of adopting switchgrass in the Central Valley of California. It adapts the approach of Positive Mathematical Programming (PMP) to construct amulti-region, multi-input and multi-crop model of agricultural supply. The model is calibrated against both observed input allocations and the exogenous supply price elasticities. For each of the regions, the model derives the supply curve of switchgrass thereby indicating the extent and location of potential switchgrass production in California. The study finds that the regions in or near the Southern San Joaquin Valley corresponding to counties of Fresno, Kings, Tulare and the cluster of regions at the frontier of the Sacrament and San Joaquin Valley appear to be the early and dominant adopters. Sensitivity analyses show that the findings are quite robust to a range of reasonable changes in the underlying technological assumptions regarding both switchgrass and existing crops.