Cornell University DEEP-GREEN-RADAR Faculty Associate Professor Christine L. Carroll presented her research on a dynamic structural model of agriculture at the National Bureau of Economic Research (NBER) conference on Understanding Productivity Growth in Agriculture.
Invasive plant pathogens, including fungi, cause an estimated $21 billion in crop losses each year in the United States. Verticillium dahliae is a soil borne fungus that is introduced to the soil via infested spinach seeds and that causes subsequent lettuce crops to be afflicted with Verticillium wilt (V. wilt). Lettuce is an important crop in California, and the majority of the lettuce production in the United States occurs in California. The value of California's lettuce crop was $1.7 billion in 2013.
V. wilt can be prevented or controlled by the grower by fumigating with methyl bromide, planting broccoli (a low-return crop), or not planting spinach. These control options entail incurring costs or foregoing profit in the current period for future benefit. V. wilt can also be prevented or controlled by the spinach seed company by testing and cleaning the spinach seeds. However, seed companies are unwilling to test or clean spinach seeds, as they are not affected by this disease.
In her research, Professor Carroll analyzes the effects of V. wilt on agricultural productivity, as well as the externalities that arise with renters, and between seed companies and growers due to V. wilt. In particular, she uses a dynamic structural econometric model of V. wilt management for lettuce crops in Monterey County, California to examine the effects of V. wilt on crop-fumigation decisions and on grower welfare.
Professor Carroll uses a dynamic model for several reasons. First, the control options (fumigation, planting broccoli, and not planting spinach) require incurring costs or foregoing profit in the current period for possible future benefit, and are thus are best modeled with a dynamic model. Second, because cropping and fumigation decisions are irreversible (as is the damage from V. wilt), because the rewards from cropping and fumigation decisions are uncertain, and because growers have leeway over the timing of cropping and fumigation decisions, there is an option value to waiting which requires a dynamic model. Third, Verticillium dahliae takes time to build up in the soil, and once present, persists for many years.
There are several advantages to using a dynamic structural model to model grower crop and fumigation decisions. First, unlike reduced-form models, a structural approach explicitly models the dynamics of crop and fumigation decisions by incorporating continuation values that explicitly model how expectations about the future affect current decisions.
A second advantage of the structural model is that we are able to estimate the effect of each state variable on the expected payoffs from different crop and fumigation choices, and are therefore able to estimate parameters that have direct economic interpretations. The dynamic model accounts for the continuation value, which is the expected value of the value function next period. With the structural model she is able to estimate parameters in the payoffs from different crop and fumigation choices, since we are able to structurally model how the continuation values relate to the payoffs from the crop and fumigation choices.
A third advantage of our structural model is that she can use the parameter estimates from our structural model to simulate the effects of crop disease on agricultural productivity. In particular, she runs counterfactual simulations to analyze the effects of V. wilt on crop-fumigation decisions and on grower welfare.
Professor Carroll's research has important implications for the management of Verticillium wilt in particular, and also for the management of diseases in agriculture in general. The results of her research are of interest to policy-makers, the agricultural industry, and academics alike.
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