Volume 39, Issue 2, August 2014

August, 2014

Partial versus General Equilibrium Calorie and Revenue Effects Associated with a Sugar-Sweetened Beverage Tax

By: Dharmasena, Senarath; Davis, George; Capps, Oral, Jr.
Taxes on sugar-sweetened beverages have been widely proposed to combat the U.S. obesity crisis. Most previous work has found the effects of a SSB tax to be small to moderate. We address three limitations. First, we incorporate the supply side via a stochastic equilibrium displacement model. Second, we account for uncertainty elasticities using probability distributions associated with elasticities. Third, we address industry revenue effects. We find that assumptions about the supply side are more important than assumptions about substitution. ignoring supply side severely overestimates quantity and calorie effects and slightly underestimated revenue effects.
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August, 2014

Beer Snobs Do Exist: Estimation of Beer Demand by Type

By: Toro-Gonzalez, Daniel; McCluskey, Jill J.; Mittelhammer, Ron
Although mass-produced beers still represent the vast majority of U.S. beer sales, there has been a significant growth trend in the craft beer segment. This study analyzes the demand for beer as a differentiated product and estimates own-price, cross-price, and income elasticities for beer by type: craft beer, mass-produced beer, and imported beer. We verify that beer is a normal good with a considerably inelastic demand and also find that the cross-price elasticity across types of beer is close to zero. The results suggest that there are effectively separate markets for beer by type.
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August, 2014

On the Endogeneity of Retail Markups in an Equilibrium Analysis: A Control-Function Approach

By: Hovhannisyan, Vardges; Stiegert, Kyle; Bozic, Marin
The endogeneity of retail markups arises due to the correlation between the markups and unobserved costs in the retail pricing equation. This correlations may be a result unobserved product quality affecting both price and markups. Despite inconsistency resulting from markup endogeneity, it has long been ignored in the equilibrium analysis of retail behavior. We account for retail markup endogeneity using a control-function approach in which controls are derived from empirical evidence in the marketing literature. Furthermore, we adopt three test procedures to evaluate this endogeneity and apply our method in an econometric analysis of retail market behavior in the marketing of yogurt in the United States. The results provide strong statistical evidence for the fact that markup endogeneity has been overlooked, resulting in upward bias in retail markups.
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August, 2014

The Effects of Consequentiality in Binary- and Multinomial-Choice Surveys

By: Interis, Matthew; Petrolia, Daniel
We examine the effect of respondent of consequentiality on a split-sample binary-choice/multinomial-choice stated-preference survey. We fail to observe the knife-edge results predicted in the consequentiality literature in the binary-choice data but do observe them in the multinomial-choice data. In the multinomial-choice data, only respondents who believed the survey was at least somewhat likely to affect future policy behaved consistently with theoretical predictions. Overall, we conclude that failing to control for perceived consequentiality can lead to false conclusions regarding marginal effects and welfare estimates. This is true in both the binary- and multinomial-choice contexts.
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August, 2014

Structural Change in Forward Contracting Costs for Kansas Wheat

By: Taylor, Mykel; Tonsor, Glynn; Dhuyvetter, Kevin
Farmers use forward contracts to eliminate adverse price and basis movements prior to harvest. Since late 2007, the local basis for Kansas wheat has changed dramatically relative to historic levels, causing greater risk exposure for elevators offering forward contracts. The result has been an increase in the cost of forward contracting paid by farmers from $0.086 per bushel to $0.327 per bushel. The factors driving this increase in costs are basis volatility, wheat futures harvest price, the information available in the market as harvest approaches, and realized returns to the elevator from forward contracting in previous years.
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August, 2014

Estimating the Spatially Varying Responses of Corn Yields toWeather Variations using GeographicallyWeighted Panel Regression

By: Cai, Ruohong; Yu, Danlin; Oppenheimer, Michael
Researchers have extensively studied crop yield response to weather variations, while only a limited number of studies have attempted to identify spatial heterogeneity in this relationship. We explore spatial heterogeneity in corn yield response to weather by combining geographically weighted regression and panel regression. We find that temperature tends to have negative effects on U.S. corn yields in warmer regions and positive effects in cooler regions, with spatial heterogeneity at a fine scale. The spatial pattern of precipitation effects is more complicated. A further analysis shows that precipitation effects are sensitive to the existence of irrigation systems.
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August, 2014

Exploiting the Relationship between Farm-Level Yields and County-Level Yields for Applied Analysis

By: Gerlt, Scott; Thompson, Wyatt; Miller, Douglas
County-level yield data are used in applied research and crop insurance policy in place of farmlevel yield data, which are likely sparse, not broadly representative, and subject to selection bias. We exploit the fact that county-level yields are the aggregate of farm-level yields to derive bounds that can be reduced to direct relationships between county- and farm-level yields under certain conditions. Simulation experiments indicate that crop insurance premium estimates derived from this method have the potential for bias in certain conditions but are reasonably precise in other conditions, suggesting that these relationships are a new tool for applied analysts.
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August, 2014

Optimal Control for a Dispersing Biological Agent

By: Chalak, Morteza
A bioeconomic model is developed to analyze the optimal control management strategies for an introduced herbivore in a two-compartment ecosystem. This paper analyzes cost-effective control strategies that decrease the spillover effects of the herbivore on endangered plant species, thereby reducing extinction pressure and increasing benefits. The optimal level of control is presented in different circumstances. The level of optimal control is high if the herbivore has a relatively low attack rate on the target species, the nontarget host has a high biodiversity value, or the costs of controlling the herbivore are low.
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August, 2014

Corrigendum to “Adoption and Frequency of Precision Soil Testing in Cotton Production”

By: Lambert, Dayton M.; English, Burton; Harper, David; Larkin, Sherry L.; Laron, James; Mooney, Daniel F.; Roberts, Roland; Velandia, Margarita; Reeves, Jeanne
The authors regret that the above paper contained an error in the calculation of the survey expansion weights (Lambert et al., 2014, p. 110). Using the notation of the paper, the expansion factor for the lth stratum was introduced as wl =agbh=ngh, where g indexes states and h indexes farm size class. This is in fact the correct expression if Sinkhorn’s (1964) RAS method were used. However, Ireland and Kullback’s (1968) cross-entropy method was used to estimate the expansion factors, and division of variables a and b by the survey response frequency (ngh) is unnecessary. The typographical error has no bearing on the empirical analysis. References
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