Multiple Choices, Strategic Interactions, and Market Effects in Livestock Disease Risk Management

Piyayut Chitchumnong and Richard Horan

No 205778, 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California from Agricultural and Applied Economics Association

Abstract: One of the main challenges in livestock production is to manage disease risks. Producers can implement preventive measures to reduce the likelihood of becoming infected; however, such efforts exhibit positive spillover effects that generate strategic behaviors. In this setting, prior work has shown that multiple equilibria could arise, particularly when one’s risk management choices and neighbors’ choices are strategic complements. We expand on prior work to examine how the availability of multiple risk management choices, as well as the role of market price responses, may affect the uniqueness and stability of strategic outcomes. We find that modeling multiple choices is important because the presence of these choices can significantly alter the predicted strategic interactions and outcomes; for instance, we can identify conditions under which having multiple choices is more likely to yield unique and stable Nash equilibria. We have found that appropriate policies are able to improve social welfare and to reduce the risk of coordination failure. In addition, our results show the importance of considering the role of market price responses, which can also facilitate risk management to promote stability and uniqueness.

Keywords: Environmental Economics and Policy; Livestock Production/Industries; Resource/Energy Economics and Policy (search for similar items in EconPapers)
Pages: 39
Date: 2015
New Economics Papers: this item is included in nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea15:205778

DOI: 10.22004/ag.econ.205778

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