ACCOUNTING FOR AGGREGATION BIAS IN ALMOST IDEAL DEMAND SYSTEMS

This study revisits the consistent aggregation (over households) property of almost ideal demand system (AIDS) models and presents a method to explicitly account for expenditure aggregation bias when estimating the aggregate AIDS model with time-series data. Ignoring aggregation bias can lead to biased and inconsistent parameter estimates and can cause aggregate demand functions to be inconsistent with the demand functions at the individual household level. Recognizing the general limited information contained in aggregate time-series data for explicitly modeling aggregation bias, we present a new method of constructing an aggregation bias term that is derived from the proportions of household in different income groups. This information is generally available in developed economies. We use this framework to estimate aggregate meat demand within a complete demand system based on U.S. annual expenditure data.Demand and Price Analysis,

Estimating the Market Effect of a Food Scare: The Case of Genetically Modified StarLink Corn

Genetic modification of crops has revolutionized food production, but it remains controversial due to food safety and environmental concerns. A recent food safety scare provides a natural experiment on the corn market's willingness to accept unapproved genetically modified organisms. In 2000, a genetically modified corn variety called StarLink was discovered in the food-corn supply, even though it was not approved for human consumption. To estimate the price impact of this event, we develop the relative price of a substitute method, which applies not only to the StarLink event but also to rare events in other markets. We apply this method to measure the price impact of the StarLink contamination on the U.S. corn market. We find that the contamination led to a 7 percent suppression of corn prices that lasted for at least a year.Food Consumption/Nutrition/Food Safety, Research and Development/Tech Change/Emerging Technologies, Q11, Q18, C22,

The Market Effect of a Food Scare: The Case of Genetically Modified StarLink Corn

Genetic modification of crops has revolutionized food production, but it remains controversial due to food safety concerns. A recent food safety scare provides a natural experiment on the market's willingness to accept an increase in perceived risk from genetically modified (GM) food. We analyze the market impact of contamination of the U.S. food-corn supply by a GM variety called StarLink. We find that the contamination led to a 6.8 percent discount in corn prices and that the suppression of prices lasted for at least a year.Food Consumption/Nutrition/Food Safety, Marketing,

Effects of Price Shocks to Consumer Demand. Estimating the QUAIDS Demand System on Czech Household Budget Survey Data

The purpose of his paper is to describe consumer behavior in the Czech Republic by estimating a demand system in which demand depends on income and prices, but also on other factors such as age, size of the household, and position on the labor market. We combine Household Budget Survey data with information on prices from alternative sources between 2000 and 2008. The main focus of our analysis is to provide estimates of both own-and cross-price and income elasticities, which can be used among other things when analyzing the impact of exogenous price changes on consumer demand. Based on our estimates, the commodity bundles of food, energy, and health and bodycare are necessary goods, as their budget elasticity is positive and below one at the same time. Clothing and shoes, transportation and communication, and education and leisure are luxury goods, with income elasticity above one. The own-price elasticities are negative for all commodity groups, as expected. The cross elasticities seem to be smaller than the own elasticities.We found expenditure on energy and transportation and communication to be the most affected by changes in their own prices. We use our estimates to analyze the impact of regulated price changes on consumer demand and discuss the further potential use of our results.Consumer behavior, demand systems, price and income elasticities, regulated prices.

The Normalized Quadratic Expenditure Function

A concise introduction to the Normalized Quadratic expenditure or cost function is provided so that the interested reader will have the necessary information to understand and use this functional form. The Normalized Quadratic is an attractive functional form for use in empirical applications as correct curvature can be imposed in a parsimonious way without losing the desirable property of flexibility. We believe it is unique in this regard. Topics covered included the problem of cardinalizing utility, the modeling of nonhomothetic preferences, the use of spline functions to achieve greater flexibility and the use of a “semiflexible†approach to make it feasible to estimate systems of equations with a large number of commodities.Normalized Quadratic, expenditure function, flexible functional forms, elasticities.

An Empirical Analysis of the Determinants of Marketing Contract Structures for Corn and Soybeans

Contracts serve as coordination mechanisms which allocate value, risk, and decision rightsacross buyers and sellers. The use of marketing contracts in agriculture, specifically for crop production,has been increasing over the past decade. This study investigates the determinants ofagricultural marketing contract design employing data from the USDA’s Agricultural ResourceManagement Survey. Models are estimated to analyze the association between producer and contractorcharacteristics, the decision to produce under contract, and the types of contract structuresobserved in practice, while controlling for the potential for endogenous matching betweencontracting parties. Results indicate that while certain producer characteristics are significantlyassociated with the decision to produce corn or soybeans under contract, there is no significantassociation between those characteristics and specific contract attributes.

Separability and aggregate shocks in the life-cycle model of consumption: evidence from Spain

The purpose of this paper is to test the life-cycle permanent income hypothesis using an unbalanced panel from the Spanish family expenditure survey. Our model accounts for aggregate shocks and non-separability in the Euler equation among consumption goods, contrary to most of the Literature in this area. Our results do not indicate excess sensitivity of consumption growth to income

Commodity Price Pass-Through in Differentiated Retail Food Markets

Prices for nearly all basic commodity rose at unprecedented rates throughout early 2008, only to fall nearly as fast as financial markets and global economies began to collapse. Rising food prices in 2008 led to concerns that commodity price spikes would lead to more general food inflation, but by early 2009 interest focused more on the seeming inability of food prices to fall back down with commodity prices. This study provides an empirical investigation into the pass-through of commodity prices to retail prices for two different types of food products: potatoes and fluid milk. The results show that pass-through depends on the nature of the food in question, but is generally consistent with theoretical models of pricing by sellers of multiple, differentiated products. In particular, pass-through rates tend to be lower for processed (differentiated) products during periods of falling input prices than when input prices are rising. For less processed products, pass-through tends to be higher during regimes of both rising and falling input prices. Our results show that pass-through depends on the degree of pricing power possessed by all channel members and, more generally, suggest a nuanced approach to understanding retail food price inflation.commodity prices, conduct, industrial organization, inflation, market power, nested logit, pass-through, random parameters model, Consumer/Household Economics, Demand and Price Analysis, Industrial Organization, C35, D12, D43, L13, L41, Q13,

Time Varying Risk Aversion: An Application to Energy Hedging

Risk aversion is a key element of utility maximizing hedge strategies; however, it has typically been assigned an arbitrary value in the literature. This paper instead applies a GARCH-in-Mean (GARCH-M) model to estimate a time-varying measure of risk aversion that is based on the observed risk preferences of energy hedging market participants. The resulting estimates are applied to derive explicit risk aversion based optimal hedge strategies for both short and long hedgers. Out-of-sample results are also presented based on a unique approach that allows us to forecast risk aversion, thereby estimating hedge strategies that address the potential future needs of energy hedgers. We find that the risk aversion based hedges differ significantly from simpler OLS hedges. When implemented in-sample, risk aversion hedges for short hedgers outperform the OLS hedge ratio in a utility based comparison