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Multiple Choices, Strategic Interactions, and Market Effects in Livestock Disease Risk Management

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  • Chitchumnong, Piyayut
  • Horan, Richard D.

Abstract

One of the main challenges in livestock production is to manage disease risks. Producers can implement preventive measures to reduce the likelihood of becoming infected; however, such efforts exhibit positive spillover effects that generate strategic behaviors. In this setting, prior work has shown that multiple equilibria could arise, particularly when one’s risk management choices and neighbors’ choices are strategic complements. We expand on prior work to examine how the availability of multiple risk management choices, as well as the role of market price responses, may affect the uniqueness and stability of strategic outcomes. We find that modeling multiple choices is important because the presence of these choices can significantly alter the predicted strategic interactions and outcomes; for instance, we can identify conditions under which having multiple choices is more likely to yield unique and stable Nash equilibria. We have found that appropriate policies are able to improve social welfare and to reduce the risk of coordination failure. In addition, our results show the importance of considering the role of market price responses, which can also facilitate risk management to promote stability and uniqueness.

Suggested Citation

  • Chitchumnong, Piyayut & Horan, Richard D., 2015. "Multiple Choices, Strategic Interactions, and Market Effects in Livestock Disease Risk Management," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205778, Agricultural and Applied Economics Association;Western Agricultural Economics Association.
  • Handle: RePEc:ags:aaea15:205778
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    References listed on IDEAS

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    4. Conrad,Jon M. & Clark,Colin Whitcomb, 1988. "Natural Resource Economics," Cambridge Books, Cambridge University Press, number 9780521331883.
    5. Benjamin M. Gramig & Richard D. Horan & Christopher A. Wolf, 2008. "Livestock Disease Indemnity Design When Moral Hazard Is Followed by Adverse Selection," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(3), pages 627-641.
    6. David A. Hennessy, 2007. "Biosecurity and Spread of an Infectious Animal Disease," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(5), pages 1226-1231.
    7. Karl M. Rich & Alex Winter-Nelson, 2007. "An Integrated Epidemiological-Economic Analysis of Foot and Mouth Disease: Applications to the Southern Cone of South America," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(3), pages 682-697.
    8. Conrad,Jon M. & Clark,Colin Whitcomb, 1988. "Natural Resource Economics," Cambridge Books, Cambridge University Press, number 9780521337694.
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