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Department of Agricultural Economics

Work in Progress

Ranging from basic studies to in-depth problem solving application, our research addresses a variety of issues and areas, including farm management and production economics, agricultural and food marketing, international trade and development, community development, policy, agribusiness, natural resource and environmental economics, agricultural finance, and teaching pedagogy and assessment.

Listed below are some recent publications pertaining to the ongoing research in the department.

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Agricultural Subsidy Incidence: Evidence from Commodity Favoritism 

Nathan P. Hendricks | Krishna P. Pokharel

We use county-level data in the United States to estimate the incidence of direct payments on cash rental rates. Direct payments were fixed subsidies not tied to price or production—thus, standard theory suggests direct payments should be fully reflected in rents. Our econometric model exploits variability in direct payments due to variation in the proportion of cropland with cotton or rice base acres while controlling for expected market returns. Cotton and rice base acres received substantially larger direct payments, arguably because cotton and rice—historically produced in the South—are politically favored compared to commodities produced in other regions. Estimates from two-stage least squares indicate that roughly $0.81 of every dollar of direct payments accrues to landlords through higher rental rates in the long run. We also construct revised standard errors that account for potential violations of the exclusion restriction. Most previous literature exploits changes in subsidies over time or differences in subsidies across areas producing the same set of commodities. Our estimate of the incidence of direct payments on rental rates is larger than most previous literature because we exploit large, persistent differences in subsidies.

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The Economic Benefits from Innovations to Reduce Heat and Water Stress in Agriculture

Nathan P. Hendricks

I identify the nonlinear impacts of heat and water stress on agricultural nonirrigated
rental rates in the central United States. My statistical model incorporates measures
of water deficit and water surplus from a water balance model rather than using cumulative
precipitation in order to account for the impact of temperature on water stress
through evapotranspiration demand. The results indicate rental rate losses of 38%
($10.8 billion) by mid-century due to climate change. Damage estimates are highly
uncertain due to variations of projections from different climate models but nearly always
indicate negative impacts and thus provide a strong rationale for increasing R&D
expenditures to adapt to climate change. I find that 65.0% of the projected damages
are due to heat stress, 32.8% due to increasing water deficit, and 3.2% due to increasing
water surplus. The results quantify the economic benefits of innovations to mitigate
damages by each mechanism and suggest efforts to adapt to climate change should
focus more on reducing heat stress. Results also indicate that the source of damages
varies spatially and thus the optimal R&D effort likely varies spatially.

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