Contract Farming as Partial Insurance

That is the title of a new working paper of mine coauthored with my former doctoral students Yu Na Lee (University of Guelph Food, Agricultural & Resource Economics) and Lindsey Novak (who is joining the Department of Economics at Colby College in a few weeks). Here is the abstract:

The institution of contract farming, wherein a processing firm contracts out the production of an agricultural commodity to a grower household, has received much attention in recent years. We look at whether participation in contract farming is associated with lower levels of income variability for a sample of 1,200 households in rural Madagascar. Relying on a framed field experiment aimed at eliciting respondent marginal utility of participation in contract farming for identification in a selection-on-observables design, we find that participation in contract farming is associated with a 0.2-standard deviation decrease in income variability. Looking at the mechanism behind this finding, we find strong support for the hypothesis that fixed-price contracts explain the reduction in income variability associated with contract farming. Then, because the same assumption that makes the selection-on-observables design possible also satisfies the conditional independence assumption, we estimate propensity score matching models, the results of which show that our core results are robust and that participation in contract farming would have greater beneficial effects for those households that do not participate than for those who do, i.e., the magnitude of the average treatment effect on the untreated exceeds that of the average treatment effect on the treated. Our findings thus show that participation in contract farming can help rural households partially insure against income risk via contracts that transfer price risk from growers to processors.

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Is Food Waste Like Reports of Mark Twain’s Death?*

“One third, eh?”

My article titled “On the Measurement of Food Waste,” written with University of Minnesota colleagues Metin Çakir, Hikaru Hanawa Peterson, Lindsey Novak, and Jeta Rudi became available online a few weeks ago as an advanced access article on the American Journal of Agricultural Economics website.

Since I was traveling then, I didn’t get much of a chance to sit down and blog about it, but here goes.

In case you missed my earlier posts on the topic, here is the abstract: Continue reading

‘Metrics Monday: Dealing with Imperfect Instruments III

Back in January, I wrote two posts about dealing with imperfect instruments. One went over Conley et al. (2012), which deals with instruments that the authors deem plausibly exogenous; the other went over Nevo and Rosen (2012), which deals with instruments that the authors deem imperfect.

In a new working paper, Damian Clarke and Benjamin Matta discuss both methods, and they present the Stata commands –plausexog– and –imperfectiv– they created to implement them.

If you are dealing with an instrumental variable that can sort of, kind of meet the exclusion restriction but might not (in other words, almost any observational IV), I suggest checking out their working paper and, if you use Stata, the add-on commands they wrote.