The theory of production under uncertainty predicts that, in a single input case, a risk-averse farmer with fair insurance increases fertilizer and decreases pesticide. However, empirical studies do not always support the theoretical predictions. Chambers and Quiggin presented state contingent technology and a method to decompose the difference of optimal revenues between farmers with different risk attitudes to the pure-risk effect and the expansion effect. The theory has potential to explain the ambiguous results in the empirical studies. However, because their analyses only considered risk-averse vs. risk-neutral farmers and assumed some restrictive conditions on the technology, the implication was limited. This paper aims to address these weaknesses. An alternative method of decomposition is introduced to consider the degree of risk-aversion. Local property of marginal revenue-cost function is discussed to examine the sign of expansion effect under more general conditions of technology. This paper provides a theoretical basis for the ambiguity in the empirical studies.

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The subject of this paper is to estimate consumers' welfare loss when the BSE testing age criterion for cattle is revised from all months to older than 21 months, by analyzing the change in meat demand due to this revision. However this analysis is different from ordinary revealed preference methods in that the demand data after this policy change are stated, while the data before this change are revealed as usual. This is because this paper focuses on a policy change which is not substantially executed yet. Using this demand data I estimated the generalized corner solution model of Phaneuf et al. (2000) for an incomplete demand system model. When I simulated each monitor's welfare loss based on the model estimation result, the expected compensating variation per household per month was 214 yen at the sample mean and 55 yen at the sample median.

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Relationship-specific investment in land improvement (e.g. deep plowing and soil dressing) is necessary for upland farming. If farmers leasing farmland are in an environment where they are able to freely decide whether or not to invest in land improvement, no problem arises. However, if their intention to invest in land improvement is inhibited by some factors, the problem of inefficient farming due to underinvestment may arise. The problem of underinvestment is most likely to occur under off-the-record farming contracts (yami kosaku), which are a type of “incomplete contract” in the sense that the contract period is not predetermined. Because of incomplete contracts, farmers are unwilling to invest since they cannot predict if they will recoup their investment value while being open to eviction threats (i.e. holdup problem). Based on these points, this paper aims to analyze the empirical determinants on contract type (i.e. establishing right of use basis, or off-the-record contract basis) and the farmers'investment choice in land improvement, using original data from Atsumi-cho, Aichi Prefecture. The main findings are as follows. First, use-right contracts encourage farmers to invest in the leased land. It was indicated that the type of contract influences the incentive for land investment. Second, it was also found that the degree of trust (e.g. kinship and proximity) between the landowner and the farmer positively influences land investment. The third finding was that the degree of opportunity cost regarding the landowner's flexibility to engage in farming also influences contract choice. Landowners not likely to engage in agriculture were highly inclined to opt for use-right contracts. These findings call for the encouragement of use-right contracts by local governments, and a compensation scheme for “beneficial expenses” in order to provide farmers with incentives for land improvement.

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