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Infectious Disease, Productivity, and Scale in Open and Closed Animal Production Systems

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Comparative advantage motivates large trade flows in feeder animals throughout the world. Trade creates externalities when animal diseases can spread beyond the purchasing farm. When growers can choose between open and closed production systems, Nash equilibrium will likely involve socially excessive trading. Supply response to an increase in marginal costs may be positive. While first-best involves marketwide adoption of either an open-trade or closed-farm system, equilibrium may entail heterogeneous systems. If this is the case, then the feeder trade should be banned. Within a farm, we show how risk of infectious disease can create decreasing returns to scale when the technology is otherwise increasing in returns to scale. Control of disease risk through bilateral contracts or damage-control technologies will increase scale of production in fattening, while better sorting in feeder animal markets will have ambiguous effects on scale.

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Paper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 04-wp367.

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Date of creation: Jul 2004
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Handle: RePEc:ias:cpaper:04-wp367

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Keywords: feeder trade; industrialization; information; Nash equilibrium; vertical integration; welfare; food safety.;

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  1. Geoffard, Pierre-Yves & Philipson, Tomas, 1996. "Rational Epidemics and Their Public Control," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(3), pages 603-24, August.
  2. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-80, January.
  3. Skaggs, Rhonda K. & Acuna, Rene & Torell, L. Allen & Southard, Leland W., 2004. "Live Cattle Exports from Mexico into the United States: Where Do the Cattle Come From and Where Do They Go?," Choices, Agricultural and Applied Economics Association, vol. 19(1).
  4. Chi, Junwook & Weersink, Alfons & Vanleeuwen, John A. & Keefe, Gregory P., 2001. "The Economics Of Controlling Infectious Diseases On Dairy Farms," Working Papers 34119, University of Guelph, Department of Food, Agricultural and Resource Economics.
  5. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
  6. Richard Bennett, 2003. "The 'Direct Costs'of Livestock Disease: The Development of a System of Models for the Analysis of 30 Endemic Livestock Diseases in Great Britain," Journal of Agricultural Economics, Wiley Blackwell, vol. 54(1), pages 55-71.
  7. Topkis Donald M., 1995. "Comparative Statics of the Firm," Journal of Economic Theory, Elsevier, vol. 67(2), pages 370-401, December.
  8. John Mclnerney, 1996. "Old Economics For New Problems -Livestock Disease: Presidential Address," Journal of Agricultural Economics, Wiley Blackwell, vol. 47(1-4), pages 295-314.
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Cited by:
  1. Catherine Laroche Dupraz & Angèle Postolle, 2011. "Food sovereignty and agricultural trade policy commitments: How much leeway do West African nations have?," Working Papers SMART - LERECO 11-03, INRA UMR SMART.
  2. David A. Hennessy, 2005. "Behavioral Incentives, Equilibrium Endemic Disease, and Health Management Policy for Farmed Animals," Center for Agricultural and Rural Development (CARD) Publications 05-wp418, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  3. Carl Gaigné & Julie Le Gallo & Solène Larue & Bertrand Schmitt, 2011. "Does the regulation of manure land application work against agglomeration economies? Theory and evidence from the French hog sector," Working Papers SMART - LERECO 11-02, INRA UMR SMART.
  4. Hennessy, David A., 2012. "Economic Aspects of Agricultural and Food Biosecurity," Staff General Research Papers 35015, Iowa State University, Department of Economics.
  5. David A. Hennessy & Tong Wang, 2013. "Strategic Interactions Among Private and Public Efforts when Preventing and Stamping Out an Highly Infectious Animal Disease," Center for Agricultural and Rural Development (CARD) Publications 13-wp541, Center for Agricultural and Rural Development (CARD) at Iowa State University.

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