Yuqing Zheng

Advertising and U.S. Nonalcoholic Beverage Demand

As a first effort at modeling nonalcoholic beverage demand in a systemwide framework that includes bottled water, this article examines the impact of advertising on the demand for nonalcoholic beverages in the United States. We employed an AIDS (almost ideal demand system) model of five jointly estimated equations that included advertising expenditures as explanatory variables to evaluate annual U. S. consumption of nonalcoholic beverages for 1974 through 2005. Results suggest that advertising increases demand for fluid milk, soft drinks, and coffee and tea, but not for juice or bottled water. Advertising spillover effects occur in over 50 percent of the cases considered, and such effects can be substantial, particularly for advertising of soft drinks, and coffee and tea. We find that a large increase in the retail price of fluid milk, an increasing trend towards dining out, and positive spillover effects from soft-drink advertising made significant contributions to bottled waters success in recent years.

News and Volatility of Food Prices

Financial markets exhibit an asymmetric news effect with unexpected low prices generating more price volatility than ‘news’ of high prices. The present study examines US food markets for such asymmetric news effects. Analysis of 25 years of monthly data for 45 retail food items shows that price news destabilizes about a third of the markets with unexpected price increases more destabilizing.

Taxing Food and Beverages: Theory, Evidence, and Policy

We developed a theoretical framework to examine the effect of a change in sales or excise tax on food and beverage demand after considering that consumers may have imperfect tax knowledge, are sometimes inattentive to sales tax, may not be informed of a sales tax change, and pay no sales tax on eligible food or beverages if using food stamps. We conducted simulations to assess how much the sales tax elasticity of demand should be adjusted downward from the price elasticity of demand and quantified the advantage of using an excise tax as an anti-obesity policy. Copyright 2013, Oxford University Press.

Measuring and testing advertising-induced rotation in the demand curve

Advertising can rotate the demand curve if it changes the dispersion of consumers’ valuations. We provide an elasticity form measure of the advertising-induced demand curve rotation in five demand models and test for its presence in the US nonalcoholic beverage market. The Almost Ideal Demand System (AIDS) model reveals that doubling advertising spending rotates the demand curves clockwise for milk, and coffee and tea with associated slope changes of 7 and 12%. Soft-drink advertising rotates its demand curve counterclockwise. Our policy suggestion is that milk and soft-drink firms time advertising to coincide with high-and low-price periods, respectively.

Estimating Asymmetric Advertising Response: An Application to U.S. Nonalcoholic Beverage Demand

We propose a regime-switching model that allows demand to respond asymmetrically to upward and downward advertising changes. With the introduction of a smooth transition function, the model features smooth rather than abrupt parameter changes between regimes. We apply the model to nonalcoholic beverage data in the United States for 1974 through 2005 to investigate asymmetric advertising response. Results indicate that a decrease in milk advertising had a more profound impact on milk demand than an increase did. An increase in milk advertising had no impact on milk demand, but a decrease could have an own-advertising elasticity up to 0.049.

U.S. Demand for Tobacco Products in a System Framework.

This study estimated a system of demand for cigarettes, little cigars/cigarillos, large cigars, e-cigarettes, smokeless tobacco, and loose smoking tobacco using market-level scanner data for convenience stores. We found that the unconditional own-price elasticities for the six categories are -1.188, -1.428, -1.501, -2.054, -0.532, and -1.678, respectively. Several price substitute (e.g., cigarettes and e-cigarettes) and complement (e.g., cigarettes and smokeless tobacco) relationships were identified. Magazine and television advertising increased demand for e-cigarettes, and magazine advertising increased demand for smokeless tobacco and had spillover effects on demand for other tobacco products. We also reported the elasticities by U.S. census regions and market size. These results may have important policy implications, especially viewed in the context of the rise of electronic cigarettes and the potential for harm reduction if combustible tobacco users switch to non-combustible tobacco products. Copyright

State Aid and Student Performance: A Supply-Demand Analysis

Abstract Using a supply–demand framework, a six‐equation model is specified to generate hypotheses about the relationship between state aid and student performance. Theory predicts that an increase in state or federal aid provides an incentive to decrease local funding, but that the disincentive associated with increased state aid is moderated when federal aid is compensatory. Applying the theory to Alabama county school test score data, results suggest that between 62 and 73 cents of the incremental state dollar goes to schools; the rest is absorbed by local taxpayers through incidence shifting, and by the federal government through the compensatory mechanism. Despite these ‘leakages’, results suggest that increased state aid can improve student performance provided the incremental funding goes to teacher salaries and not to reductions in class size. Poverty reduction or income growth, however, might accomplish the same ends at lower cost.

Advertising, Habit Formation, and U.S. Tobacco Product Demand

The U.S. tobacco market has experienced a shift toward noncigarette tobacco products. We examined the degree of habit formation and the role of advertising for cigarettes, little cigars/cigarillos, large cigars, e-cigarettes, and smokeless tobacco using market-level scanner data for convenience stores from 2009 to 2013. Results based on a dynamic demand system show that while all tobacco products are habitual, e-cigarettes are the most habitual product. More choices of flavors, less restrictions on its use in public places, less documented harmful effects, and a higher upfront cost might explain the higher degree of habit formation for e-cigarettes. We also find that e-cigarettes did not substitute for or complement cigarettes. The results imply that e-cigarettes may serve as a gateway to nicotine addiction but not necessarily to cigarette smoking. Regarding advertising, cigarette magazine advertising did not affect cigarette demand, while e-cigarette TV advertising increased e-cigarette demand with a positive spillover to cigarette demand. Such results may help explain e-cigarettes’ recent success in sales and imply that e-cigarette TV advertising might undermine efforts to reduce cigarette smoking. Advertising was also found to affect the degree of habit formation for cigarettes, large cigars, and e-cigarettes.

Trade Liberalization, Unemployment and Adjustment: Evidence from NAFTA Using State Level Data

This article specifies a supply and demand model of the labour market to examine the effects of North American Free Trade Agreement (NAFTA) on the US labour market. Regression results suggest that NAFTA decreased yearly unemployment growth by 4.4%. Equivalently, NAFTA brought a structural break to the US state level unemployment. The second finding is that the labour market began feeling the impact of NAFTA immediately after its implementation and the labour market has continued to feel its effects probably through 2001.

U.S. Demand for Tobacco Products in a System Framework

This study estimated a system of demand for cigarettes, little cigars/cigarillos, large cigars, e-cigarettes, smokeless tobacco, and loose smoking tobacco using market-level scanner data for convenience stores. We found that the unconditional own-price elasticities for the six categories are -1.188, -1.428, -1.501, -2.054, -0.532, and -1.678, respectively. Several price substitute (e.g., cigarettes and e-cigarettes) and complement (e.g., cigarettes and smokeless tobacco) relationships were identified. Magazine and television advertising increased demand for e-cigarettes, and magazine advertising increased demand for smokeless tobacco and had spillover effects on demand for other tobacco products. We also reported the elasticities by U.S. census regions and market size. These results may have important policy implications, especially viewed in the context of the rise of electronic cigarettes and the potential for harm reduction if combustible tobacco users switch to non-combustible tobacco products. Copyright