Dale Heien

Demand Systems Estimation With Microdata: A Censored Regression Approach

Demand systems estimation increasingly makes use of household-level microdata, mainly to measure the effects of demographic variables. Data based on these household-expenditure surveys present a major estimation problem. For any given household, many of the goods have zero consumption, implying a censored dependent variable. Techniques which do not take this censored dependent variable into account will yield biased results. We utilize a censored regression approach that is computationally simple, consistent, and asymptotically efficient. The results are then presented and compared with those obtained using an uncensored technique.

Markup Pricing in a Dynamic Model of the Food Industry

This paper presents a dynamic model of farm and retail prices and quantities. Central to the model is the notion that increases in wholesale prices are transmitted to the retail level via markup-type pricing behavior. This behavior is shown to be consistent with firm optimization under the assumption of constant returns to scale and Leontief production technology at the retail level. The markup hypothesis is tested using the Granger-Sims causality tests. Markup-type price relationships are then estimated for twenty-two food commodities.

The Demand for Dairy Products: Structure, Prediction, and Decomposition

This article presents an analysis of the demand for dairy products. First, the structure of dairy product demand is estimated using the Household Food Consumption Survey data. Under the assumption of a two-stage budgeting procedure, a complete demand system for food incorporating demographic effects is estimated. Next, using the demand relations estimated from cross-section data, prediction interval tests utilizing time-series data are performed for milk and butter. Last, factors affecting consumption are classified into economic and demographic effects and a decomposition of the causes of changes in demand over time is performed.

The Demand for Alcoholic Beverages: Economic and Demographic Effects

Recent proposals for revenue enhancement have called for increased taxation of alcoholic beverages. Knowledge of the structure of demand for an item is, of course, a primary ingredient in appraising any proposed tax plan. Although a number of studies have been conducted on data from other countries, very little is known about the demand for alcoholic beverages in the United States. This is particularly true for beverage specific studies. There has been no recent study treating the demand for alcoholic beverages in the U.S. as a complete system and most studies on specific beverages are also quite dated. Equally important has been the absence of demographic effects in the studies of demand for various alcoholic beverages. This paper attempts to remedy this shortcoming by providing estimates of the demand for beer, wine and spirits based on cross-section data.

Productivity in U.S. Food Processing and Distribution

Most productivity studies in agriculture have focused on the relation between farm inputs and farm output. Of equal importance, however, is productivity in the food processing and distribution sector. Farm output is an input into this process, similar to other inputs such as labor, transportation, and packaging. Technical change or increases in the levels of other inputs will, in general, increase the marginal product of farm output (Freebairn, Davis, Edwards). For example, a new beef-cutting machine will raise the marginal value product of beef and hence increase the demand for slaughter beef by processors. For this and other reasons, the efficiency of the marketing sector has long been of interest (French). The purpose of this paper is to define and measure productivity at the processing and distribution level by comparing Theil-Tdrnqvist (TAT) indexes of inputs and outputs. The use of TAT indexes is consistent with the assumption of reasonably general underlying production relations and follows the recommendations of the recent

The Structure of Food Demand: Interrelatedness and Duality

This paper presents a new empirical demand system which mitigates the effects of multicollinearity while facilitating the measurement of interrelatedness. Duality theory is used to derive the inverse demand functions. Using data on fourteen food items a complete set of demand equations is estimated in both quantity and price dependent forms. The model is used to test for the theoretical restrictions of homogeneity, additivity and negativity, as well as the habit formation hypothesis. A comparison is made between these results and those of Brandow and George and King.

Food consumption in Mexico: demographic and economic effects.

Disaggregated demand analysis is beginning to receive increased importance in food policies for developing countries. Using household data from the 1977 Mexican Income and Expenditure Household Survey, the authors estimate the income and demographic effects on expenditures for 9 aggregate food categories. In addition, they use a probit model to explore the effect of these variables on the purchase decision for 5 high protein supplying goods. The results indicate that demographic variables, as well as income, have important effects in determining food expenditures. The authors analyze these effects and indicate the role they might play in food policy programs such as PRONAL, the National Food Programme.

Empirical models of meat demand: How do they fit out of sample?

Out of sample tests were performed on two meat demand models: the linear, relative-price real-income specification and the almost ideal demand system. Variants of each model included seasonal effects and habit formation. Estimation procedures included single equation OLS, seemingly unrelated regression, and autocorrelation corrections. The models were tested over five different time periods. The study found that no particular model consistently outperformed the others. This was true over different time periods, across commodities, and across specifications and estimation techniques. A K 2 goodness of fit test could not reject the hypothesis that outcomes were uniformly distributed by classes. There was little statistical difference between the top five model types. At the 5% level, the best predicting model was not significantly different from the top four contenders in a majority of the 15 test cases.

The Gains from Price Stabilization: A Quantitative Assessment

A widely discussed problem in economics is the benefits from price instability. The original work by Waugh used consumer surplus to show that individuals benefit from price variation vis-a-vis stabilization at the mean. A later model by Oi did the same for producers, while Massel integrated the two analyses. An excellent account of the development of this problem is Turnovsky (1978). These analyses relied on models of consumer surplus with linear or log-linear demand functions, neither of which can be derived from utility-maximizing behavior. As a result, these demand curves do not relate to known measures of consumer welfare such as Hicksian compensated variation or the true cost of living. Realizing this, Hanock recast the problem in terms of the indirect utility function. Under the assumption of cardinal utility, Hanock; and Turnovsky, Shalit, and Schmitz derived the conditions, including those relating to risk, under which consumers gain. Under the assumption of ordinal utility, we prove the proposition that consumers gain from price instability. Next, these benefits are quantified via a Monte Carlo experiment.

Estimating the Supply Elasticity of California Wine Grapes Using Regional Systems of Equations

This article is the first of its kind to estimate econometrically the supply elasticity of California wine grapes. Wine grapes constitute the single largest crop in the state of California in terms of total receipts. Allowing for the dynamic adjustments of quasi-fixed inputs, we estimate simultaneous systems of equations for Californias four major wine grape growing regions and eight of the most widely grown varieties. We find that California wine grape production is, on the whole, inelastic with respect to prices received. The variety showing the most price responsiveness is Chardonnay. There appears to be no significant difference in price responsiveness between the coastal and inland growing regions, or between red and white grape varieties. (JEL Classification: Qll, Q13, R14)