Xiaoyong Zheng

Complementarity among Alternative Procurement Arrangements in the Pork Packing Industry

We estimate the economies of scale for a sample of pork packing plants and use these estimates together with two other performance measures (EBIT and gross margin) to examine whether the alternative procurement methods for live hogs are complementary. The results indicate that all procurement arrangements portfolios improve plant performance relative to the simple spot market purchases, but the portfolio coefficients in performance equations do not always monotonically increase with the portfolio order. However, looking at the price packers pay to procure their hogs, the results indicate that plants that use a combination of higher-order procurement arrangements on average pay lower prices relative to plants that use the spot market only. Comparing the magnitudes of the portfolio effects with the magnitudes of the individual procurement arrangement effects shows that individual practices have minimal additional impact on the procurement price, indicating that the procurement methods may be complementary.

Bargaining, Search, and Price Dispersion: Evidence from the Live Hogs Market

Using unique panel data on individual transactions between buyers and sellers in the spot market for live hogs, we found a large degree of intra-day price dispersion. Motivated by this empirical puzzle, we offer an explanation which is rooted in the bargaining with search theory. We formulate three hypotheses involving the role of farmers’ search cost, bargaining parties’ patience, and asymmetric information that we believe can explain the observed phenomenon. Empirical analysis shows strong support for all three of the stated theoretical predictions, indicating that the bargaining with search theory explains at least 31 percent of the observed intra-day price variation in this market.

Household-Level Welfare Effects of Organic Milk Introduction

This study analyzes the factors that determine the demand for milk products and the consumer benefits from organic milk introduction. Estimating a structural model, the welfare effect is decomposed into two parts: the effect of having an additional product and the effect from the price changes in existing products due to the enhanced competition. In order to take heterogeneous tastes for different product characteristics into account, the unit of analysis is defined at the Universal Product Code (UPC) level and the demand is estimated for each household. The estimates from mixed logit demand approach indicate that households with younger head, higher income or higher education value more for the organic attribute. The distribution of estimated variety effect shows similar implications as the parameter estimates. The compensating variation and price effects indicate that the overall benefits take about 8 percent of the current expenditure and half of it is from increased competition in the market.

Modelling bivariate count distributions with finite mixture models: application to health care demand of married couples

Count measures of health care utilization are often correlated with other measures of utilization. In addition, utilization measures display a high proportion of zero observations. This article attempts to accommodate both data features in one model, with an application to medical care usage of husbands and wives. A bivariate count representation is used to model dependence between husbands’ and wives’ utilizations, and a finite mixture specification accommodates the problem of excess zeros. Results show that married couples are characterized by two distinct subpopulations according to the intensity of utilization of the wife.

Estimating asymmetric information effects in health care with uninsurable costs

We use a structural approach to separately estimate moral hazard and adverse selection effects in health care utilization using hospital invoices data. Our model explicitly accounts for the heterogeneity in the non-insurable transactions costs associated with hospital visits which increase the individuals’ total cost of health care and dampen the moral hazard effect. A measure of moral hazard is derived as the difference between the observed and the counterfactual health care consumption. In the population of patients with non life-threatening diagnoses, our results indicate statistically significant and economically meaningful moral hazard. We also test for the presence of adverse selection by investigating whether patients with different health status sort themselves into different health insurance plans. Adverse selection is confirmed in the data because patients with estimated worse health tend to buy the insurance coverage and patients with estimated better health choose not to buy the insurance coverage.

The Effects of Productivity and Demand-Specific Factors on Plant Survival and Ownership Change in the U.S. Poultry Industry

In this paper we study the productivity-survival link in the U.S. poultry processing industry using the longitudinal data constructed from five Censuses of Manufactures between 1987 and 2007. First, we study the effects of physical productivity and demand-specific factors on plant survival and ownership change. Second, we analyze the determinants of the firm-level expansion. The results show that higher demand-specific factors decrease the probability of exit and increase the probability of ownership change. The effect of physical productivity on the probability of exit or ownership change is generally insignificant. Also, firms with higher demand-specific factors have higher probability to expand whereas the average firm-level physical productivity turns out to be an insignificant determinant of firm expansion.