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ARS Examples of Different Types Economic Analysis

Updated 08/22/2008

Presented by Dr. David Archer at the NP-207 Workshop, October 24-27, 2006, Atlanta, GA

Enterprise Budgeting Examples

Two examples using enterprise budgeting are included:

 These represent one of the most fundamental levels of economic analysis, comparing the net returns for different treatments. The analysis is fairly straightforward, and could be done with minimal help from an economist. In constructing enterprise budgets, it does not take too much more effort to include estimates of labor and energy use. The economic risk and returns paper includes a rudimentary risk analysis by looking at the standard deviations of net returns over time.

 Risk Analysis Examples

Two papers and an accompanying presentation for the second paper are included which gives some risk analysis examples:

 These examples use stochastic budgeting, which is essentially enterprise budgeting with the addition of stochastic (random) variables (such as price or yield). In order to do any kind of risk analysis, we need information about the distributions of the random variables. In cropping systems studies, where yield is often a random variable we are interested in, this means we need a long enough series of data to give some representation of the variability that could be expected over time. Stochastic budgeting has become much easier to conduct with the introduction of several commercial software programs such as @RISK, Crystal Ball, and SIMETAR.

 Response Function Example

An example of response function analysis is given by:

 This example uses experimental data to estimate a relationship between cover crop biomass and profitability, allowing producers to see the amount of cover crop biomass needed in order for the use of cover crops to be profitable. This technique is applicable to a wide range of problems, and is commonly used in analyzing optimum fertilizer application rates.

 Bio-economic Modeling Example

A technique that is often used in economic analysis of natural resources is the linkage of biophysical models with economic models. An example of this approach is described in:

This example uses the SWAT model linked with a profit-maximization economic model to estimate the environmental and financial effects of alternative policies.

 Multi-objective Analysis Example

Another technique commonly used in economic analysis of natural resources is multi-objective analysis. An example of multi-objective analysis is given by:

This example gives a case example using a multi-objective decision support system to analyze decisions involving tradeoffs between economic returns and five other decision variables for alternative management systems.

 Other Examples

An example valuing added management flexibility is given by:

This example uses simulation modeling with dynamic whole-farm optimization to identify the potential use and economic value of a technology that increases planting flexibility.

 Issues to Consider in Designing Field Experiments

A good discussion of some issues to consider in the design of field experiments if you want to include economic analysis: