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The Economic Value of Situation and Outlook Programs: A Review of Theory and Empirical Evidence

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  • Irwin, Scott H.

Abstract

Public situation and outlook (S&O) programs have a relatively long history. The first formal program is generally thought to be the USDA's Outlook Conference held on April 20, 1923. Since that time, S&O programs have expanded considerably in scope, both at the federallevel under the auspices of the USDA and at the state-level within land-grant colleges of agriculture. The objectives of public S&O programs probably have not changed a great deal over time. In 1930, H.R. Tolley suggested a purpose statement that, in my view, is still relevant today, "One of the primary objectives of outlook work has been, and probably will continue to be, to obtain and make available to farmers information that will be helpful to them in planning their production programs so as to obtain the greatest returns for their efforts and resources" (p.523). In recent years, the economic value of public S&O programs is being increasingly questioned. I believe there are two main reasons for the reappraisal of the value of these programs. The first is the growth of private firms that provide relatively low-cost market information and analysis services of the type traditionally provided by public programs.' The surge in private activity is related to the rapidly declining cost of gathering, processing, and distributing information. It is argued that public S&O programs can be downsized because private information providers are now available to perform the functions historically provided by public programs (e.g., Just 1983). • The second reason is the intellectual challenge provided by rational expectations theory. Briefly, if producers have rational expectations, then they make optimal use of all available information and do not make systematic forecasting mistakes. Hence, social welfare cannot be increased by providing producers with "better" price and quantity forecasts, as producers already make optimal forecasts. In this paper, I will explore the recent challenges to S&O programs. In the first part of the paper, theoretical arguments regarding the economic value of S&O programs will be discussed. Three theoretical frameworks will be examined: (1) a cobweb model, (2) a rational expectations model, and (3) a rational expectations model with learning and costly information. In the second part of the paper, the direct empirical evidence on the economic value of S&O programs will be reviewed.

Suggested Citation

  • Irwin, Scott H., 1994. "The Economic Value of Situation and Outlook Programs: A Review of Theory and Empirical Evidence," Re-Engineering Marketing Policies for Food and Agriculture - FAMC 1994 Conference 265986, Food and Agricultural Marketing Consortium (FAMC).
    • Handle: RePEc:ags:famc94:265986
    DOI: 10.22004/ag.econ.265986
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    References listed on IDEAS

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    1. Bray, Margaret, 1985. "Rational Expectations, Information and Asset Markets: An Introduction," Oxford Economic Papers, Oxford University Press, vol. 37(2), pages 161-195, June.
    2. repec:bla:ecorec:v:52:y:1976:i:138:p:199-212 is not listed on IDEAS
    3. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    4. J. W. Freebairn, 1976. "The Value and Distribution of the Benefits of Commodity Price Outlook Information," The Economic Record, The Economic Society of Australia, vol. 52(2), pages 199-212, June.
    5. Frances Antonovitz & Terry Roe, 1984. "The Value of a Rational Expectations Forecast in a Risky Market: A Theoretical and Empirical Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 66(5), pages 717-723.
    6. Stein, Jerome L, 1992. "Cobwebs, Rational Expectations and Futures Markets," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 127-134, February.
    7. Stephen J. DeCanio, 1979. "Rational Expectations and Learning from Experience," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(1), pages 47-57.
    8. David F. Bradford & Harry H. Kelejian, 1978. "The Value of Information for Crop Forecasting with Bayesian Speculators: Theory and Empirical Results," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 123-144, Spring.
    9. Bray, Margaret M & Savin, Nathan E, 1986. "Rational Expectations Equilibria, Learning, and Model Specification," Econometrica, Econometric Society, vol. 54(5), pages 1129-1160, September.
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    Cited by:

    1. Unknown, 1997. "Price Discovery in Concentrated Livestock Markets: Issues, Answers, Future Directions," Research Institute on Livestock Pricing 232724, Virginia Polytechnic Institute and State University, Department of Agricultural and Applied Economics.
    2. Brorsen, B. Wade & Irwin, Scott H., 1996. "Improving the Relevance of Research on Price Forecasting and Marketing Strategies," Agricultural and Resource Economics Review, Cambridge University Press, vol. 25(1), pages 68-75, April.

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