How much do you value the present over the future

Economists have long been interested in people's "discount rates" - the rate at which people discount the value of a dollar in the future as compared to a dollar today.  If given the choice between being given a dollar today or a dollar ten years from now, I suspect almost everyone would take the dollar today.  The key question researchers try to answer is this: exactly how many dollars would you have to be given in, say, 10 years to make you indifferent to 1 dollar today?  

What this number is has important implications for how we should "discount" the value of projects that provide benefits in the future by incurring costs today.  Examples where a discount value is needed include road building, going to college, and building a factory.  But, the issue has become particularly heated in relation to debates over climate change.  Whether and to what extent one is willing to incur costs today to mitigate carbon emissions depends critically on the extent to which the future benefits (and potential costs) are discounted.   

One can get a feel for this time trade-off by looking at market interest rates but that doesn't tell the whole story.  As a result, many economists have turned to laboratory experiments where people make choices like the one I described above.  The trouble has been that such experiments have been limited to making future payoffs that are typically only 1 to 6 months away.  My co-authors, Threse Grijalva and  Douglass Shaw, and I found away around this, and the results are discussed in a paper forthcoming in the journal Environmental and Resource Economics: 

We use a laboratory experiment to elicit discount rates over a 20-year time horizon using government savings bonds as a payment vehicle. When using a constant (exponential) discount rate function, we find an implied average discount rate of 4.9 %, which is much lower than has been found in previous experimental studies that used time horizons of days or months. However, we also find strong support for non-constant, declining discount rates for longer time horizons, with an extrapolated implied annual discount rate approaching 0.5 % in 100 years. There is heterogeneity in discount rates and risk preferences in that people with more optimistic beliefs about technological progress have higher discount rates. These findings contribute to the debate over the appropriate discount rate to use in comparing the long-term benefits of climate change mitigation to the more immediate costs.

Experimental Auction Summer School

For the 3rd year in a row, I've had the privileged to co-teach a summer school for the University of Bologna in Italy with Rudy Nayga, Andreas Drichoutis, and Maurizio Canavari.  The topic of the school is experimental auctions, which is a method used to measure consumer preferences and study consumer behavior. 

We have a great group of students this year from Italy, Germany, Sweden, France, South Africa, China, Thailand, and the U.S, among other places.   Here are a few of us learning a bit about the history of Bologna on our day off.

We also caught a couple races at the Dino and Enzo Ferrari Autodrome race track in Imola.  After the Ferrari's and Lamborghini's cleared the track, they had an interesting race with Mini Coopers.

Today we are back at work thinking about economics, consumer behavior, food policy, and food marketing.   

My colleagues have had a good time harassing me about eating horse meat (yes, I willingly ate some two days ago and I'm pleased to say it was perfectly eatable as I've previously argued) and organics (for my latest take on that one see here), and why Americans eat differently than Europeans.  

Here's the whole group just outside the classroom:

Am I Pro- or Anti-Garden?

Partially in response to the opening lines of my piece in Townhall magazine related to the Obama's White House garden, one of my colleagues (Francis Epplin) said he didn't understand my objection to gardens, and he pointed out that they are bi-partisan (apparently our Republican-led Dept of Ag in Oklahoma has a garden too).    

My response was that I didn't mean to come across as "anti garden." Up until a couple years ago, my 91 year old grandmother grew tomatoes, okra, and other goodies in her backyard.  That said, I do find it strange when public officials (whether Obama or Governor Fallin) grow "symbolic" gardens.  In these cases, I think it is fair to ask what is being symbolized and ask whether the arguments used to promote gardens hold up to the scientific evidence.  Of course not all gardens are symbols of something bigger, and it seems perfectly reasonable for someone to say they grow a garden because "they like to."  There are certainly worse things one can do with their time.   

In any event, Epplin advanced an interesting hypothesis, which he consented to me sharing here:  

My hypothesis would be that families that grow, or try to grow gardens, would have a better understanding of the weed and pest challenges encountered by farmers.  I would also hypothesize that they would be more sympathetic toward herbicides and pesticides.

This is a testable hypothesis and would make a great research project.  A part of me thinks Francis is right.  However, tending a garden is also different than managing a 1000 acre farm, and I'm not sure it translates.  Indeed, I think it is possible that just the opposite opinion will be formed.

This reminds me a bit of the conversation that came up in the Food Dialogues Event I participated in a couple months ago.  The former deputy secretary of agriculture, Kathleen Merrigan, talked about farmers selling at farmer's markets as being agricultural ambassadors and representing farmers more generally.  The implication was that such farmers would help the average consumer better understand production agriculture.  However, someone in the audience made a good point when he argued that the farmer at the farmers market was not the same kind of farmer he was.  The implication is that the guy at the farmers market was just as apt to say something bad about his farm than be an ambassador.  

Will gardens or farmers markets make people more or less accepting of modern production agriculture?   

I don't know.  

What Do Food Stamp Recipients Buy?

This editorial in the LA Times sounds an "alarm" about our lack of knowledge about how food stamp recipients spend their money:

The debate in Congress  about cutting the food stamp program has sparked predictable clashes between those who want to help the poor and those who want to cut government spending. But strangely missing from the arguments is a shocking fact: The public, including Congress, knows almost nothing about how the program's $80 billion is spent.

The underlying premise of article seems to be a notion that we need to know how food stamp recipients spend their money so we can decide if they are using it wisely.  That is, should purchases of food stamp recipients should be restricted to exclude unhealthy items?  I'm a bit skeptical of the impacts of such policies for reasons I talked about previously:

we have to realize that restricting [food stamp] use may not have the intended effect.  Money is fungible.  If you can't use food stamps to buy sodas, you'll use them to buy more of something else - freeing up money to buy soda.

But, that's not the reason I'm weighing in here.  Coming off a highly successful meeting of the Agricultural and Applied Economics Association earlier this week, I was again reminded of the exciting and energetic work being done by my fellow food and agricultural economists.  I can only think that many of them who study food stamp (SNAP) issues would bristle at the statement in the LA Times that: 

SNAP is kept under wraps. And Congress acts blindly, with the House voting to remove SNAP from the farm bill altogether and the Senate proposing to cut $4 billion from the program.

If Congress acts blindly, it is only because they (or their staffers) are unwilling to read the peer-reviewed research.   The fact is that there are large number of studies that, by merging various data sets, have investigated what SNAP recipients eat, how their purchases differ from non-SNAP recipients, and whether SNAP participation causes things like obesity.  

True, we may not have scanner-type data from grocery stories tied to EBT cards, but that is a far stretch from claiming we know nothing or act "blindly". 

Role of technology in the global economic importance and viability of animal protein production

That mouthful is the name of an article I wrote for the journal Animal Frontiers.     

Here are a few excerpts: 

Walk in almost any Department of Animal Science in the U.S. and one is likely to find a few black and white photos of stern, cowboy-hat wearing animal husbandry students from the early part of the last century. The remarkable thing about those photos is not the now unfashionable clothes but rather the champion cattle the students were proudly displaying for posterity. Today, one can scarcely find a bovine as fat and squatty as those that were once so esteemed. Pondering the difference between the prized cattle in those black and white photos and almost any old steer in a modern feedlot provides a stark illustration of the role of technology in shaping animal production over the past century

and

The direst of the Malthusian predictions have failed to materialize. Although the population of the world has grown dramatically over the past three centuries (and is expected to grow further still), the rate of growth has slowed, and in some developed countries has even begun to fall. While people of Malthus’s day probably could not have envisioned modern birth control methods, the most pessimistic interpreters of Malthus’s model almost certainly underestimated the impacts of productivity-increasing technological change.

I used a number of approaches to calculate the economic value of the productivity gains that have occurred in meat production in the past 40 years.  Here are the results of one approach applied to beef cattle:

if we applied the same genetics and technology used in 1970 to a cow herd the size of the one at present, we would expect to experience only $24.8 billion in farm value produced. The remaining $37.16 - $24.80 = $12.36 billion in value actually observed (or about 33% of current total value) is a result of factors (e.g., genetics, technology) that gave rise to improved productivity