Stephen F. Hamilton

Public goods and the value of product quality regulations: the case of food safety

Abstract The paper examines preferences for product quality regulations. Our premise is that preferences for product quality regulations derive from preferences for both private and public goods. The model is used to explain public attitudes toward a referendum measure to eliminate pesticide residues on food. Results from a survey of consumers are consistent with the conceptual model and show that preferences for public goods influence support for the product quality regulation. The results help explain why consumption behavior is a poor predictor of political behavior, and have implications for methods that use voting and market behavior to value public goods.

Tax Incidence Under Oligopoly: A Comparison of Policy Approaches

Abstract This paper presents a methodological approach for the analysis of tax incidence that encompasses familiar forms of taxation in a general and analytically convenient model. In oligopolistic industries, the performance of a tax depends on the sensitivity of the unit tax rate to changes in industry output. Output-elastic tax schedules are less likely to be over-shifted and have superior welfare properties relative to regulatory instruments that are less responsive to the equilibrium market quantity. For revenue neutral tax reforms, the finding of Delipalla and Keen (1992) that ad valorem taxes welfare-dominate specific taxes under oligopoly is derived as a special case of this general result.

Strategic Environmental Policy and International Trade in Asymmetric Oligopoly Markets

This paper examines optimal cooperative and non-cooperative environmental taxes for the case in which a polluting input is used to produce an internationally-traded finished product. The model allows for terms-of-trade effects under oligopoly and employs a general specification of the environmental damage function that encompasses special cases of local, global, and transboundary externalities. The model has several implications for public finance. For example, inefficiently high environmental taxes may be optimal for a net exporting country in non-cooperative circumstances, as the motive to shift rent by selecting an inefficiently low tax rate is countervailed by the incentive to shift the burden of the tax to foreign consumers. The findings identify the important role of asymmetric trade flows (denominated in both goods and pollution exchange) in determining optimal cooperative and non-cooperative tax policy under oligopoly.

Vertical structure and strategic environmental trade policy

The idea that environmental trade policy may be used to achieve competitive advantage in international markets has important implications for the way we conceive tree-trade. This paper reconsiders the issue of strategic environmental policy in a model that makes explicit the vertical structure that supports production of the traded good. We find these intranational vertical relationships to have a substantial qualitative effect on the optimal strategic environmental trade policy. We show that under both quantity and price competition in the international market, the optimal policy to levy on the polluting input when vertical contracts are allowed is a Pigouvian tax.

An Empirical Test of the Rent-Shifting Hypothesis: The Case of State Trading Enterprises

A central result in the theoretical literature on strategic trade is the erent-shifting hypothesisi, the idea that governmentis can employ trade policy as a precommitment device to transfer profit from foreign to domestic firms. To our knowledge, however, the rent-shifting hypothesis remains untested empirically. This paper constructs a theory-based empirical test of rent-shifting behavior that relies on observations of government precommitment variables employed through State Trading Enterprises (STEs). The analysis applies data on the delayed producer payment structure of the Canadian Wheat Board (CWB) and examines its merits as a rent-shifting mechanism in the international durum market. The model fails to reject the hypothesis that the CWB utilizes a pre-commitment mechanism in the international durum market and several nonparametric tests confirm that the observed transfer payments set by the CWB are consistent with rent-shifting behavior in the 1972-95 pre-WTO period.

Returns to Public Investments in Agriculture with Imperfect Downstream Competition

A multiple-market framework is developed to measure the size and distribution of research benefits. The model considers an upstream raw product market and a downstream finished productmarket and allows for imperfect competition in the intermediary food-processing sector. A central conceptual result is derived: an increase in raw product output is a sufficient condition for cost-reducing innovations in the farm sector to increase social welfare. A special case of linear farm supply and isoelastic processing production functions reveals that necessary conditions for welfare to decrease are a convergent farm supply shift, an oligopsonistic upstream market configuration, and increasing returns-to-scale processing technology. Copyright 1998, Oxford University Press.

Slotting Allowances as a Facilitating Practice by Food Processors in Wholesale Grocery Markets: Profitability and Welfare Effects

Slotting allowances, which are lump-sum transfers paid by food manufacturers to grocery retailers in return for various retail concessions, are becoming increasingly common in wholesale grocery markets. This article extends the literature on slotting allowances by considering two features that previously have been ignored: the role of food processors in determining these pricing arrangements, and the effect of slotting allowances on the size and distribution of economic surplus. Slotting allowances motivated by food processors increase procurement quantities and farm prices, and this raises farm surplus, increases total producer surplus, and improves consumer welfare in the food system. Copyright 2003, Oxford University Press.

Does Market Timing Contribute to the Cattle Cycle

Recent evidence suggests that cyclical cattle inventories are driven by exogenous shocks. This article examines a second possible contributing factor to the cattle cycle: a market timing effect that arises from individual attempts to maintain countercyclical inventories. The model uncovers an important conceptual point: to the extent that cycles are driven by exogenous shocks, a representative producer should outperform one who maintains a constant inventory; whereas, for cycles induced by market timing, a representative producer should underperform one with a constant inventory. Simulated net returns over 1974−98 reveal that a constant-inventory manager significantly outperformed the representative U.S. producer, which indicates that market timing influences the cattle cycle. Copyright 2000, Oxford University Press.

Product Differentiation, Store Differentiation, and Assortment Depth

This paper considers the relationship between product differentiation, store differentiation, and the equilibrium depth of the product assortment. We find an inverted U-shaped relationship between product differentiation and assortment depth, with the depth of the assortment rising at first and then falling with the degree of product differentiation. For product categories that consist of relatively nondifferentiatied variants, a positive relationship arises between assortment depth and category sales, whereas a negative relationship emerges between assortment depth and sales in categories with more differentiated variants. Both the extent and manner in which store differentiation changes has important implications for assortment depth. If retailer market power is augmented following the closure of rival retailers, product assortments become deeper; however, if retailers gain market power by investing in store attributes that facilitate customer loyalty, product assortments become shallower.

Vertical Coordination, Antitrust Law, and International Trade*

This paper demonstrates that vertically aligned private or public organizations are capable of generating strategic trade advantage similar to that acquired through direct government export subsidization. The model considers two forms of vertical coordination that lead to advantageous trade positions in international markets: upstream vertical restraint and downstream equity sharing. Such practices are commonly employed both by state trading agencies and by priyate firms in nations with lenient antitrust laws. The finding has important implications under new World Trade Organization (WTO) rules intended to reduce government intervention in international transactions. Recent reforms in the WTO favor nations that sanction highly refined vertical linkages between firms, while nations with stringent antitrust legislation have an incentive to negotiate for greater harmonization of international laws.