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The Value of Weather Information in Market Equilibrium

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  • Bruce A. Babcock

Abstract

Increased accuracy of weather forecasts does not necessarily increase commodity supply or farmer welfare. This study presents a stylized model of competitive production with rational expectations and demonstrates that improved weather information harms farmers facing an inelastic demand. Contrary to the conclusions of previous studies, the decline in farmer welfare does not require an expansion in expected supply. Better weather information may signal farmers to produce less on average under an inelastic demand. A supply decrease occurs when increases in the physical productivity of applied inputs are dominated by adverse price consequences.

Suggested Citation

  • Bruce A. Babcock, 1990. "The Value of Weather Information in Market Equilibrium," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(1), pages 63-72.
  • Handle: RePEc:oup:ajagec:v:72:y:1990:i:1:p:63-72.
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    File URL: http://hdl.handle.net/10.2307/1243145
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    1. Alberto Chong & Virgilio Galdo & Máximo Torero, 2005. "Does Privatization Deliver? Access to Telephone Services and Household Income in Poor Rural Areas Using a Quasi-Natural Experiment in Peru," Research Department Publications 4417, Inter-American Development Bank, Research Department.
    2. MacAuley, Molly K., 2005. "The Value of Information: A Background Paper on Measuring the Contribution of Space-Derived Earth Science Data to National Resource Management," Discussion Papers 10839, Resources for the Future.
    3. Lybbert, Travis J. & Magnan, Nicholas & Gubler, W. Douglas, 2012. "Multi-Dimensional Responses to Risk Information: How do Winegrape Growers Respond to Disease Forecasts and to What Environmental Effect?," Working Papers 162521, Robert Mondavi Institute Center for Wine Economics.
    4. Jisang Yu & Nathan P. Hendricks, 2020. "Input Use Decisions with Greater Information on Crop Conditions: Implications for Insurance Moral Hazard and the Environment," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(3), pages 826-845, May.
    5. Alexander E. Saak & David A. Hennessy, 2002. "Planting Decisions and Uncertain Consumer Acceptance of Genetically Modified Crop Varieties," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(2), pages 308-319.
    6. Thompson, Nathanael M. & DeVuyst, Eric A. & Brorsen, B. Wade & Lusk, Jayson L., 2014. "Value of Genetic Information for Management and Selection of Feedlot Cattle," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 39(1), pages 1-17, April.
    7. Lichtenberg, Erik, 2002. "Agriculture and the environment," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 2, chapter 23, pages 1249-1313, Elsevier.
    8. Antonovitz, Frances, 1991. "Market -Level Measures Of The Value Of Weather Information: Conceptual And Empirical Considerations," 1991 Annual Meeting, August 4-7, Manhattan, Kansas 271191, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    9. Alberto Chong & Virgilio Galdo & Máximo Torero, 2005. "¿Cumple la privatización lo que promete? El acceso a los servicios telefónicos y el ingreso familiar en zonas rurales pobres empleando un experimento cuasinatural en Perú," Research Department Publications 4418, Inter-American Development Bank, Research Department.
    10. Lambert, David K., 2008. "The expected utility of genetic information in beef cattle production," Agricultural Systems, Elsevier, vol. 99(1), pages 44-52, December.
    11. Thompson, Nathanael M. & DeVuyst, Eric A. & Brorsen, B. Wade & Lusk, Jayson L., 2016. "Using Genetic Testing to Improve Fed Cattle Marketing Decisions," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 41(2), May.
    12. Poon, Kenneth & Weersink, Alfons & Deaton, Brady J., Jr., 2011. "Demand and Supply Analysis of Farm, Farmer and Farm Family Data," Working Papers 114094, Structure and Performance of Agriculture and Agri-products Industry (SPAA).
    13. Anbarci, Nejat & Boyd III, John & Floehr, Eric & Lee, Jungmin & Song, Joon Jin, 2011. "Population and income sensitivity of private and public weather forecasting," Regional Science and Urban Economics, Elsevier, vol. 41(2), pages 124-133, March.
    14. L. Zirulia, 2015. "“Should I stay or should I go?”: Weather forecasts and the economics of “short breaks”," Working Papers wp1034, Dipartimento Scienze Economiche, Universita' di Bologna.
    15. Carriquiry, Miguel A. & Osgood, Daniel E., 2006. "Index Insurance, Production Practices, and Probabilistic Climate Forecasts," 2006 Annual meeting, July 23-26, Long Beach, CA 21463, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    16. Macauley, Molly, 2006. "Ascribing Societal Benefit to Environmental Observations of the Earth from Space: The Multi-angle Imaging Spectroradiometer (MISR)," RFF Working Paper Series dp-06-09, Resources for the Future.
    17. Pluske, Johanna M. & Fraser, Rob W., 1995. "Can Producers Place Valid and Reliable Valuations on Wool Price-Risk Information?," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 63(02), pages 1-8, August.
    18. Lorenzo Zirulia, 2016. "‘Should I stay or should I go?’," Tourism Economics, , vol. 22(4), pages 837-846, August.
    19. Mjelde, J. W. & Hill, H. S. J., 1999. "The effect of the use of improved climate forecasts on variable costs, input usage, and production," Agricultural Systems, Elsevier, vol. 60(3), pages 213-225, June.
    20. Alberto Chong & Virgilio Galdo & Máximo Torero, 2009. "Access to Telephone Services and Household Income in Poor Rural Areas Using a Quasi‐natural Experiment for Peru," Economica, London School of Economics and Political Science, vol. 76(304), pages 623-648, October.
    21. Velandia, Margarita M. & Lambert, Dayton M. & Jenkins, Amanda & Roberts, Roland K. & Larson, James A. & English, Burton C. & Martin, Steven W., 2009. "Factors Influencing Selection of Information Sources by Cotton Producers Considering Adoption of Precision Agriculture Technologies," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49326, Agricultural and Applied Economics Association.
    22. Gitonga, Zachary M. & Visser, Martine & Mulwa, Chalmers, 2020. "Can climate information salvage livelihoods in arid and semiarid lands? An evaluation of access, use and impact in Namibia," World Development Perspectives, Elsevier, vol. 20(C).
    23. Chong, Alberto E. & Galdo, Virgilio & Torero, Maximo, 2006. "Does Privatization Deliver? Access to Telephone Services and Household Income in Poor Rural Areas Using a Quasi-Natural Experiment for Peru," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25691, International Association of Agricultural Economists.

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