Essays on Modeling the Economic Impacts of a Foreign Animal Disease on the United States Agricultural Sector

Foreign animal disease can cause serious damage to the United States (US) agricultural sector and foot-and-mouth disease (FMD), in particular, poses a serious threat. FMD causes death and reduced fecundity in infected animals, as well as significant economic consequences. FMD damages can likely be reduced through implementing pre-planned response strategies. Empirical studies have evaluated the economic consequences of alternative strategies, but typically employ simplified models. This dissertation seeks to improve US preparedness for avoiding and/or responding to an animal disease outbreak by addressing three issues related to strategy assessment in the context of FMD: integrated multi region economic and epidemic evaluation, inclusion of risk, and information uncertainty. An integrated economic/epidemic evaluation is done to examine the impact of various control strategies. This is done by combining a stochastic, spatial FMD simulation model with a national level, regionally disaggregated agricultural sector mathematical programming economic model. In the analysis, strategies are examined in the context of California's dairy industry. Alternative vaccination, disease detection and movement restriction strategies are considered as are trade restrictions. The results reported include epidemic impacts, national economic impacts, prices, regional producer impacts, and disease control costs under the alternative strategies. Results suggest that, including trade restrictions, the median national loss from the disease outbreak is as much as $17 billion when feed can enter the movement restriction zone. Early detection reduces the median loss and the standard deviation of losses. Vaccination does not reduce the median disease loss, but does have a smaller standard deviation of loss which would indicate it is a risk reducing strategy. Risk in foreign animal disease outbreaks is present from several sources; however, studies comparing alternative control strategies assume risk neutrality. In reality, there will be a desire to minimize the national loss as well as minimize the chance of an extreme outcome from the disease (i.e. risk aversion). We perform analysis on FMD control strategies using breakeven risk aversion coefficients in the context of an outbreak in the Texas High Plains. Results suggest that vaccination while not reducing average losses is a risk reducing strategy. Another issue related to risk and uncertainty is the response of consumers and domestic markets to the presence of FMD. Using a highly publicized possible FMD outbreak in Kansas that did not turn out to be true, we examine the role of information uncertainty in futures market response. Results suggest that livestock futures markets respond to adverse information even when that information is untrue. Furthermore, the existence of herding behavior and potential for momentum trading exaggerate the impact of information uncertainty related to animal disease.