Tradeoffs and Resource Allocation Effects for Alternative IS Management Policies

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Tradeoffs and Resource Allocation Effects for
Alternative IS Management Policies

• Thomas Wahl, Zishun Zhao, Ricardo Diaz
• IMPACT Center and
• School of Economic Sciences
• Washington State University
• www.impact.wsu.edu

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The Rest Of The Team

• Preston Andrews, Horticulture
• Jan Busboom, Animal Science
• Ron Mittelhammer, Economics
• Ray Huffaker, Economics
• Michael Livingston, ERS

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Motivation

• Agricultural production is a complex and dynamic
  process with an evolving productive stock
• Changing demographics due to shocks
• BSE, FMD, coddling moth,
• Long-lasting effects of these shocks
• Different effects on various participants
• Get the biological process right and then add the
  IS shocks and policies

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Objectives

• Develop a modeling framework that
• Can be used to measure effects on social welfare
  from IS
• Is general enough to accommodate different animal
  and plant species
• Can establish the linkage between economic loss
  and risk management policies
• Will generate optimal resource allocation schemes
  for alternative IS management policies

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Model Highlights

• Two bio-economic models developed
• Animal Pest (Livestock model)
• Plant pest (Perennial fruit model)

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Model Highlights

• Inventories are differentiated by age
• Demand system
• AIDS
• Substitution effects
• Money-metric welfare measure
• Important IS pathways endogenized
• Flexibility in accommodating various expectation
  schemes

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Livestock Model
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Perennial Fruit Model
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IS Introduction and Dissemination

• Production decisions in the presence of an
  invasive species
• Non-susceptible inventories
• Immune inventories
• Susceptible inventories
• Affected (host) inventories
• Inventory groups determined by the dynamics of
  dissemination
• Random nature of introduction and spread

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IS Introduction and Dissemination (e.g..
livestock)
Susceptible
Immune
Non-Susceptible
Hosts
Death and Depopulation
Immune
Non-Susceptible
Hosts
Susceptible
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IS Introduction and Spread

• Establishment and spread

• Preventionreducing the probability of
  establishment and/or number of hosts

• Controlincreasing the probability of eradication

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IS Introduction and Dissemination

• Introduction and eradication are random variables
  with a geometric distribution
• Preventionreducing the probability of
  establishment
• Controlincreasing the probability of an IS being
  detected and eliminated

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Policy Implications

• Prevention measures
• Marginal cost among measures equal
• Positive probability of establishment
• Eventually an IS becomes established
• Prolong interval between events
• Monitoring and emergency response

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Policy Implications

• Tradeoff between prevention and control
• Resource use
• Fast-spreading, hard-to-eliminate species
• Preventing less costly
• Costly-to-detect, slow-spreading species
• Control less costly
• Confidence in government agencies
• Producers perception of susceptibility will
  change probability of becoming affected

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Livestock Model Implementation

• Annual beef production model with 9-year
  reproductive life
• Feeders go through backgrounding and a fixed
  ration feeding program
• Growth and body composition of feeders predicted
  using NRC nutrient requirements
• Quality and yield grade predicted to fit the
  marketing system grid
• Linear search to determine the optimal slaughter
  point

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Livestock Model Implementation

• Demand for both fed beef and cow beef
• Inventory updatingnaïve expectations in unit
  profitability with partial adjustment
• Unit profitability as a proxy for capital value
  of cows

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Simulated Scenarios

• Assumed scenarios to test the validity and
  stability of the model
• One-time 30 reduction in breeding herd
  representing a dramatic depopulation
• 15 death rate in the breeding herd representing
  an epidemic
• 100 increase in the feed cost representing feed
  regulation
• 100 increase in breeding cost (maintenance cost
  of cows)

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One-time 30 Inventory Reduction
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Death Rate Increase to 15
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100 Increase in Feed Cost
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100 Increase in Breeding Cost
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Simulation of FMD w/o Intervention

• Assuming no treatment and full recovery
• Dissemination rate of 4 herds/week
• 2 death in mature cattle and 20 death in calves
• Normal demand continues

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FMD Scenarios With Normal Demand
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Progress of the Perennial fruit model

• A simulation model for apple production is being
  implemented
• Increasing marginal cost is assumed
• Formulated as a mixed complementarity problem
• Runs of a preliminary version show stable and
  reasonable solutions

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Summary and Conclusion

• Dynamic general equilibrium framework captures
  short- and long-term effects
• Linkage between the economic loss and the risk
  management policies
• Cost-benefit analysis
• Optimal resource allocation
• Validity and stability demonstrated

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Unresolved Issues and Possible Extension

• Welfare measure for the producers
• A simulation model incorporating all livestock
  production
• Common diseases
• Substitution effects
• A livestock model including Canada, the US, and
  Mexico where all the live trade occur

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Conference Papers

• Zhao, Zishun, Thomas Wahl, and Ricardo Diaz.
  Modeling the Effects of Alternative Invasive
  Species Management Policies on livestock
  Production. Selected long paper, AAEA 2004,
  Denver, CO.
• Zhao, Zishun, Thomas Wahl, and Ricardo Diaz.
  Modeling the Impacts of Alternative Invasive
  Species Management Policies on Perennial Fruit
  Production and Consumption. Selected paper, WAEA
  2004, Honolulu, HI.
• Díaz, Ricardo, Thomas Wahl and Zishun Zhao. The
  Economic Implications of Invasive Species in
  International Trade The Chile US Fresh Fruit
  Market. Paper Presented to ASCC, PECC Trade
  Forum LAEBA Conference 2004, Viña del Mar, Chile

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Tradeoffs and Resource Allocation Effects for
Alternative IS Management Policies

• Thomas Wahl, Zishun Zhao, Ricardo Diaz
• IMPACT Center and
• School of Economic Sciences
• Washington State University
• www.impact.wsu.edu