Estimating Producer's Surplus with the Censored Regression Model: An Application to Producers Affected by Columbia River Basin Salmon Recovery

Abstract

Application of the tobit model to estimate economic welfare is transferred from the consumer side to the producer side. Supply functions are estimated for multioutput irrigators in the Pacific Northwest. Empirical procedures are then developed for computing expected producer's surplus from the output supply functions. Confidence intervals for the surplus measures are generated using the Krinsky-Robb method. An experiment predicts decreases in surplus given increases in water pumping cost. The experiment replicates possible increases in hydroelectric prices due to the salmon recovery program in the Columbia-Snake River Basin. Output substitution explains producers' ability to mitigate the effect of the price increases on producer's surplus.

Keywords

• endangered species act
• multioutput supply
• pacific northwest
• producer's surplus
• salmon
• tobit regression
• water price