Measurement Error in Agricultural Economics

Agricultural economist is criticized by Steven Payson in his book "Economics, Science and Technology" that, 'price per pound' is a variable with a strong historical precedence in agricultural economics. My first reaction is that Steven should be right about this assertion. I have not read many published papers in agricultural economics and applied economics where sort of measurement unit is used to digitalize (numerically) variables. But my experience tells me that, in general economic theoretical research, economists do not have to specify the unit of a variable after a standardization on everything (or simply with an assumption of unit as 1 at the beginning or by default). In this case, the objective of economic modelling and associated mathematical manipulation is to tell an economic logic or reasoning story (not necessarily an easy to understand answer). As long as the direction of specification (assumed economic relationship) is correct, then there is no need to worry about numbers. The potential issue of measurement error has been taken away in structural research, a skeleton without flesh never needs to worry about the issue of obesity, the probability is no larger than 0.

In agricultural economics, one of the biggest applied area of economics, research is dominated by empirical application of economic analysis. However, often time, the data employed by these research is not collected by researchers themselves (including agricultural economists in different research institutions and graduate students). People who collect the first hand data are usually people who are not supposed to do economic analysis (and they may not be interested in doing so). They are staffs in statistics bureaus, USDA extensions, marketing research companies and so on. They follow the tradition and associate every column of data with an unit as 'per pound', 'per gallon' or 'per acre'. By this way, they also find it is easy to communicate with people who actually work on farm daily. Economists barely bother to do field data collection-the input of research activity. So there is an inconsistency, the academic researchers try very hard to explore and understand the laws and mechanisms behind the economic activities of non-academia. When the data collectors proceed their job, however,  there is a communication need to be considered as I mentioned above. The numbers and measures they are using have to be easy to understand for different people, almost all of them are not economists.

So when people outside of academia criticize the research output of economics, they do not always realize the difference between applied economics and theoretical economics. What usually happens is that, when there is a critique, theoretical economists tend to defend for entire economics. Why? because they are more famous than applied economists, and they won Nobel prizes, so people know them pretty well (at least better than they know about applied economists). When people get questions about their economic life, they come to theoretical economists for answers. But they barely know that relatively precise answer can and should only be provided (more or less, good or bad) by applied economists. And another important fact is that, theoretical economists are good at telling story and making arguments.

This inconsistency and the silence of applied economists make a big distinction between economics and natural science. In physics, for example, people know Bill Gates, Henry Ford, Thomas Edison very well. Why, because they are applied physicists (or engineers). However, when you ask people do you know any theoretical physicists?  I am afraid they can only tell you Einstein, and the reason they know Einstein is not because they want to understand or they have already understood the Theory of Relativity. It is because that Einstein spent almost 1/3 of his life to make himself (or the Theory of Relativity) famous.

Therefore, what an applied economist should do is obvious. It is not trying to adjust or reduce your standard error of estimators, since you never get large enough sample size, and you never know how much is the measurement error involved in your data. What you should do is that, to start answering question from people who do not understand economics and people who are not interested in understanding economics. Do not let theoretical economists take your position and suppress you in a corner; it is too bad that is the case now, but you can change your silent status by speaking out. And do not always ask or even make up a question by yourself, and then answer it by yourself. That is what theoretical economists should do, do not take their position because you would have a more suitable and more pleasant position if you do something different and something more important.

Reference:
[1] "Economics, Science and Technology", by Steven Payson, pp.43, Edward Elgar, Cheltenham, UK.

Why did the chicken cross road?

Because it maximized his utility, this is the answer from Charles Wheelan and his Naked Economics.

Because he is forward-looking, I guess this is my answer. If one has chance to grow up in a traditional farm (either American style or non-American style), he or she may have a good observation on the behavior of a chicken. Can a chicken step back like other animals or a human being? I guess no. So when a chicken is searching for food (normally, this is the only utility maximization activity), he always searches forward and by chance he may cross the road under danger. This logic does not seem to make too much sense, but the point is that a chicken crosses the road by instinct. And mostly, the instinct of a chicken involves searching food and surviving from danger, which are all featured by his forward-looking behavior.

It can be argued that forward-looking behavior is common in the natural world. But we should bear in mind the fact that a chicken never rolls forward, and, a badger does this often time. It turns out rolling forward behavior is pretty efficient in the world of a badger's existence. Now let's ask the question again, why did the badger cross road? One possible answer is that he is constrained. Because when we build a road, we keep the slope of road from this side to another side minimized to prevent roll-over. Hence, there is no slope for him to roll forward, there is a physical constraint.Of course, this does not necessarily conflict with the possibility that his utility is maximized by doing this.

So for different animals, the answer to this question tends to be different and varies by their instinct and nature of their existence. How about human beings? We are the most organized animal on the earth. We have a very complicated society and hence we are called advanced animal by ourselves. When we are not self-sufficient (almost surely everyone in U.S. is not self-sufficient at least), we play a role in the market economy, where we exchange everything possible for different level of needs. And every of us in the market can be called a businessman or entrepreneur, the only difference comes from the scale of each one's business.

Again, the same question, why did the businessman/entrepreneur (potentially every of us) cross the road? Charles Wheelan answered the question this way: because he could make more money on the other side. I agree with him since utility of every of us (a market player) is highly correlated with money in different patterns or formats. Therefore, if an individual is not out of mind (for different reason, subjective or objective) at a specific moment, then he or she crosses the road for a purpose. And the purpose is somehow connected with money making or utility maximization.

My another question is that, in terms of economics study and research, can we really study the economic behavior of any individual beyond this highly organized human being society? Put other way, is economy a specialized word and only applicable in human being society? I tend to say yes, otherwise it is hard to differentiate instinct from utility maximizing behavior. And this may also be the reason why I get confused when I come across some parts of experimental economics, a new field of economics.

Reference:
1. Charles Wheelan, Naked Economics, 2002, New York, pp.8-11.

Observations and Thoughts on Haiti and Chile

Here are some observations from a blogger:
"The recent earthquakes in Haiti and Chile present an interesting contrast between the deleterious effects of a major earthquake in one of the richest countries in the western hemisphere and in the poorest.  It may surprise you that Chile is (by relative standards) quite an advanced and relatively wealthy country as many Americans, I think, have a tendency to view all of Latin America as a poor region.  According to the CIA, the per-capita GDP in Chile in 2009 was $14,700 while Haiti was $1,300 - so while Chile is far from US or Western European standards of living, it is a much wealthier country than Haiti.  In both cases the earthquake (and subsequent tsunami in Chile) were devastating disasters, but the scope of the tragedy in Haiti was, it appears, much, much worse."

These observations pass two serious thinking to me:
1. Other than physical demand, people's level of immaterial demand can also be determined by income or wealth; and most of time, safety is not among the basic levels of human needs.
2. Opportunity cost for poor is less than rich people when they are facing the same danger and potential of losing. Who can stand more risk and unsafety, poor or rich? This is a two-way argument.

So the practical question is that, can we validate these observation via some statistical or econometrics methods?

The Nature of Agricultural Economics - My Thought

The strength of agricultural economics is not that it can compete with general economics research. People may feel that general economics research is more decent, this is true in the sense that it produces pretty neat and nice work with help of mathematic notation. Mathematics is important, this should be admitted, it is the logic language of this world. So what general economics research does is that it has been employed in the effort of expressing the world, while the agricultural economics research should be dedicated to be more close to the real world, to pass more care to people and entire world's basic needs.

There is a movie which has been putting on the screen for a while, Food Inc. (2008). An American documentary film directed by Emmy Award-winning filmmaker Robert Kenner. The film examines large-scale agricultural food production in the United States, concluding that the meat and vegetables produced by this type of economic enterprise have many hidden costs and are unhealthy and environmentally-harmful. The documentary generated extensive controversy in that it was heavily criticized by large American corporations engaged in industrial food production. This is just an example, so the question is that after popular cost-benefit analysis and its derivative forms and combinations, who really cares about problem like above? Most of time, optimization, maximization, equilibrium and so forth are too perfect to be practical in applications; some other time, human activity and interaction are so of diversity that it is not enough or even it is not neccessary to follow a cost-benefit logic, especially when you have hard time to identify who are beneficiaries and who are victims.

Here is a word I want to share with everyone: we can only and will only win the world by love and responsibility, not by proving; because essentially everything can be proved while nothing cannot be proved eventually.
                                              -- Haoying Wang, 2010

Future and Complexity

--For the Understanding of Environmental Economics and Studies Concerned

I believe that man has the power, the intelligence, and the imagination to extricate himself from the serious predicament that now confronts him. The necessary first step toward wise action in the future is to obtain an understanding of the problems that exist. This in turn necessitates an understanding of the relationships between man, his natural environment, and his technology.

                                                            -Ocho Rios, Jamaica, April 1953.

In principle, the vast knowledge we have accumulated during the last 150 years makes it possible for us to look into the future with considerably more accuracy than could Malthus. But in actual fact we are dealing with an extremely complex problem which cuts across all of our major fields of inquiry and which, because of this, is difficult to unravel (to explain something that is difficult to understand or is mysterious) in all of its interlocking aspects. The complexity of the problem, our confusion, and our prejudices, have combined to form a dense fog that has obscured the most important features of the problem from our view - a fog which is in certain respects even more dense than that which existed in Malthus’ time. As a result, the basic factors that are determining the future are not generally known or appreciated.

In spite of the complexity of the problem which confronts us, its overwhelming importance, both to ourselves and to our descendants, warrants our dissecting it as objectively as possible. In doing so we must put aside our hatreds, desires, and prejudices, and look calmly upon the past and present. If we are successful in lifting ourselves from the morass (an unpleasant and complicated situation that is difficult to escape from) of irrelevant fact and opinion and in divorcing ourselves from our preconceived ideas, we will be able to see mankind both in perspective and in relation to his environment. In turn we will be able to appreciate something of the fundamental physical limitations to man’s future development and of the hazards which will confront him in the years and centuries ahead.

Maybe We Just Need a New Word: Gadget

"Samsung has just announced at Barcelona a new cell phone, the Beam, that they expect to have on the market this summer. Its special feature is a built-in pico projector, making it a combination cell phone and (very wimpy) video projector. A cute gadget, although not one that I am likely to have much use for. I do, however, have one suggestion for improving it."

Reading through this news, I am happened to be interested in the word Gadget: Two similar explanations can be easily referenced from dictionary:

(1) an often small mechanical or electronic device with a practical use but often thought of as a novelty;

(2) any object that is interesting for its ingenuity or novelty rather than for its practical use.

So it comes to me as a question, have we been proposing and digging Gadgets in econometrics and economics? This could happen to be a 'gadget' question, but it is definitely not a 'gadget' issue. Too many people are publishing papers which probably are going to have its author(s) as the only and last careful reader. So why we spend one or two years, even three years to invent such a "gadget"? For tenure, for promotion or just for fun (self understanding of the subjects)? Maybe it is just for a popular social demand of vanity, maybe it is just an indispensable part of the system, who knows?