The Benefit Function Approach to Modeling Price-Dependent Demand Systems: An Application of Duality Theory

In this article, we advocate more extensive use of the benefit function in specifying price-dependent or inverse demand models. We demonstrate how duality theory may be used to establish the interrelationships between the Marshallian (or Hicksian) inverse demands and Luenberger's adjusted price functions, allowing estimable inverse demands to be derived directly from a benefit function. We estimate two systems of inverse demands for Japanese quarterly fish consumption. Results indicate that the procedures and methods employed here appear promising, and may prove beneficial for quantity and welfare analysis when modeling systems of inverse demand functions.     

The Use of Conditional Cost Functions to Generate Estimable Mixed Demand Systems

Mixed demand systems have been virtually ignored in empirical work solely because derivation of these systems requires closed forms for both direct and indirect utility functions. This article proposes the alternative of using a conditional cost function to generate empirical mixed demand models. This approach allows the estimation of mixed demand systems, which are explicit in an unobservable variable (utility), but may lack a closed form representation in terms of observable variables such as prices, quantities and expenditure. Results indicate that this approach is operationally feasible, which opens up a wider range of mixed demand specifications in static analyses.     

Wholesale Demand for Fish in Greece

Inverse demand systems explain price variations as functions of quantity variations. This article presents a dynamic inverse almost ideal demand system (AIDS) model based on recent developments on cointegration techniques and error correction model. The case of fish landed at Greek seaports appears to suit this model well. The results indicate that the underlying distance function is homothetic whereas the own-quantity flexibilities suggest that the responses of price to own-quantity changes are inelastic. Finally, the results of cross-quantity uncompensated flexibilities suggest that the substitution possibilities among fish grades are rather limited. The Allais interaction intensities verified the substitutability among fish grades as well.     

Efficient Estimation of Hedonic Inverse Input Demand Systems

This article is concerned with efficient estimation of characteristics demand. We derive and estimate an inverse input demand system for quality characteristics by using 172,946 observations over 881 trading days in the Icelandic fish auctions. An improved estimation method based on an expanded random coefficient model is suggested as an alternative to the currently used two-stage method of Brown and Rosen . The estimates demonstrate the improved efficiency of the suggested method. A number of empirical results emerge, including a general increase in the demand for quality.     

Pollution abatement and productivity performance of regional Canadian pulp and paper industries

The performance of pulp and paper industries in four Canadian regions is compared based on the estimation of an input distance function, with and without pollutant outputs. Distance functions are techniques for the representation and estimation of multiple-output and multiple-input production technologies. They are quantity-based techniques. Non-marketed outputs such as pollutants can be easily incorporated into productivity analysis with the help of distance functions. This environmentally sensitive approach provides higher productivity growth estimates for all regions, indicating the need for adjusting conventional measures that ignore the non-marketed benefits of pollution abatement activities. The results also consistently indicate the presence of substantial differences in the regional levels of technical efficiency. Regional industries have not enjoyed similar rates of technological progress due to differences in their underlying structures. Productivity growth estimates for most regional industries remain weak or negative even after the recognition of pollution abatement efforts. Estimates of regional level costs of abatement for biological oxygen demand (BOD) and suspended solids (TSS) are provided.     

Cost Efficiency for Alberta and Ontario Dairy Farms: An Interregional Comparison

In this study, two non-homothetic translog stochastic meta-frontier cost functions—with and without local concavity imposed—are estimated using a nonlinear maximum likelihood estimation procedure to compare the cost efficiency of Alberta and Ontario dairy farms for the period 1984–96. The resulting cost efficiency estimates are not very sensitive to whether or not curvature is imposed. In contrast, the properties of the cost and input demand functions (e.g., elasticities) are sensitive to imposition of local concavity during estimation. The implication is that if an inappropriate model that does not satisfy the properties required by the economic theory is used, the estimated input demand functions may not be reliable. Average cost efficiency for the pooled sample, with local concavity imposed, is approximately 89%. This suggests some potential for improved performance in the sector. The results also suggest that Ontario dairy farms may be more cost efficient than Alberta dairy farms, but the statistical evidence is inconclusive.     

A MODEL OF THE DISAGGREGATED DEMAND FOR MEAT IN AUSTRALIA

The focus of this study is the estimation of the Australian demand for meat between 1967 and 1990, employing a demand systems approach which uses the linear approximate, almost ideal demand system (LA/AIDS) model. Two demand systems are estimated by maximum likelihood methods, one for aggregate types of meat and one for disaggregated meat products. After correcting for serial correlation in the two demand systems, restrictions from utility theory are imposed and tested for their appropriateness. By using a new data set on the Australian retail price and consumption offresh pork, ham and bacon, the results from the disaggregated model provide the first estimates of the own-price, cross-price and expenditure elasticities for these commodities.     

Estimation of Censored Demand Equations from Large Cross-Section Data

The article develops an alternative econometric methodology to estimate a system of censored demand equations using a large cross-section data from Colombian urban households. The approach preserves the behavioral information expressed by zero expenditures and conforms with the requirements imposed by consumer theory in a way consistent with the random utility hypothesis. We motivate the choice of the Tobit model as a statistical representation of consumer behavior and introduce the methodology by specifying the AIDS model modified according to both a translating and scaling demographic transformation. We propose to estimate each demand equation in unrestricted form using the jackknife technique. We then recover the demand parameters imposing the cross-equations restrictions by using minimum distance estimation. The empirical results of the censored demand system for specific households of policy relevance are reported.     

Demand System Estimation with Upward-Sloping Supply

There are three important implications of this work. First, demand systems estimates that overlook supply response are as subject to simultaneous equations bias as single ad hoc demand equations. Theil shows theoretically that assuming supply curves are perfectly elastic, when in fact they are not will underestimate price responsiveness in demand equations. An empirical example is presented that demonstrates that the price elasticities generally increase when upward-sloping supplies are assumed.
Second, the iterative testing procedure presented may provide direction for model building when the true structure of the system is unknown. For example, the results of the Wu-Hausman test indicate that assuming chicken supply is perfectly elastic in a model of the Japanese livestock industry is justified. The results also indicate that the supplies of Wagyu beef, dairy beef, pork and fish are upward-sloping and therefore should be modeled as endogenous variables in the demand system.
Third, the results emphasize the sensitivity of projections of Japanese beef imports to the assumptions underlying the demand system. If perfectly elastic meat supplies are assumed for an analysis of reducing Japanese beef import liberalization, the results will likely underestimate the impacts on beef imports.
In summary, the supply curves for agricultural products tend to slope upward within the time periods used for traditional policy analysis and demand system estimation, which in turn implies that prices are determined endogenously within the system. Endogenous price determination is contrary to the assumptions that underlie the theoretical foundations and many empirical applications of demand systems. We present a methodology to test for and adjust demand systems for endogeneity. The importance of this adjustment is demonstrated by using an analysis of the liberalization of the Japanese beef market.     

Forms of Scale Curves and Differential Inverse Demand Systems

This article provides a new interpretation of the scale effects in differential inverse demand systems. A scale curve is defined as a curve that shows how the expenditure share of a good or service changes as the consumption level changes. It is shown that Brown, Lee, and Seale's synthetic model has the same scale effects as do the Box–Cox scale curves. In this light, their model is not a mere composite but a model in its own right. An empirical illustration given for Japanese fresh food demand suggests that the underlying scale curves differ from both linear and loglinear forms.     

AGRICULTURAL EXPORTS OF DEVELOPING COUNTRIES: ESTIMATES OF INCOME AND PRICE ELASTICITIES OF DEMAND AND SUPPLY

This paper provides new evidence on income and price elasticities of demand and supply of agricultural exports from developing countries, on the basis of (a) a consistent and fully specified supply and demand model, and (b) statistical estimation procedures not frequently used in the estimation of agricultural export functions. Estimates of price and income elasticities of demand for aggregate agricultural exports for all developing countries taken together — as distinct from individual exporting countries — are found to be low; moreover, export price as distinguished from non-price factors plays a relatively insignificant role in increasing export supply. Hence, an attempt by all developing countries to expand traditional agricultural exports with low price elasticity of demand may not yield rising earnings for all; but in fact may result in falling export revenues. Insofar as individual exports of all developing countries (not individual countries) are concerned, income and price elasticities of demand for such tropical commodities as tea, coffee, cocoa and bananas are also found to be low, except for new, non-traditional exports like pineapples. This indicates the importance of diversification of agricultural exports as a vehicle for their future growth.     

应用碳氧平衡法测算生态用地需求量实证研究

研究目的:应用碳氧平衡法探讨区域生态用地需求量的测算方法,为编制土地利用总体规划提供科学依据。研究方法:碳氧平衡法,生态服务功能法。研究结果:空气中的碳氧平衡是在不断调整绿色植物和多种释碳耗氧关系基础上实现的。研究二氧化碳和氧气的消耗与供应关系及其分配特征,有助于测算生态用地需求量。应用上述方法开展了测算郑州市2010年生态用地需求量实证研究。研究结论:解决生态用地需求量预测必须界定"生态用地"的概念和区分土地生态功能多元性。研究表明基于碳氧平衡法测算区域生态用地需求量的方法是可行的,具有可操作性。应当从生态用地角度重新审视土地利用现状分类体系,使其完善。     

UTILITY FUNCTIONS AND DEMAND STRUCTURE*

The purpose of this paper is to review the demand structures implied by several common utility specifications. After a review of the Hicks-Allen measures of the demand structure, four utility functions are examined including the Cobb-Douglas, CES, and Mukerji functions. The results indicate that the most popular utility specifications provide patterns of demand parameters which do not conform to those made in estimation of commodity demand functions L'objet de cet papier est passer en revue des structures commandes de quelques caractéristique de ?utilité. Après un revoir de la proposition du Hicks et Allen du structure commandes, quatre fonctions pour ?utililé sonl examiné. Ils renfermes les fonclions du Cobb-Douglas, CES, et Mukerji. Les résultats indiquent ce que les caractérisliques de, ?utilité le plus populaire pouvoissem les modèles les quels ne confor-mentpas à celles des fonctions des commandes pour les produils.     

Spatial Spillovers on Input‐specific Inefficiency of Dutch Arable Farms

Traditional benchmarking implicitly assumes that decision making units operate in isolation from their peers. For arable production systems in particular, this assumption is unlikely to hold in reality. This paper quantifies spatial spillovers on input‐specific inefficiency using data envelopment analysis and a second‐stage bootstrap truncated regression model. The bootstrap algorithm is extended to allow for the estimation of the parameter of the spatial weight matrix, which captures the proximity between producers. The empirical application concerns Dutch arable farms for which latitudes and longitudes are available. The average inefficiency across years was 3.87% for productive inputs and 2.98% for damage abatement inputs under variable returns to scale. For productive inputs technical inefficiency, statistically significant spillover effects from neighbours’ age and their degree of specialisation depended on the type of the spatial weight matrix used (inverse distance or k‐nearest neighbours). Statistically significant spillover effects of subsidy payments were adverse while statistically significant spillover effects from insurance payments were beneficial. For damage abatement inputs technical inefficiency, statistically significant adverse effects were found for neighbours’ age and subsidy payments and beneficial effects from neighbours’ insurance payments and their degree of specialisation.     

THE DEMAND FOR INPUTS AND THE AGGREGATE SUPPLY FUNCTION FOR AGRICULTURE*

This paper presents a theoretical derivation of aggregate supply elasticities from the relevant input demand elasticities. By way of illustration, an estimate of the aggregate supply elasticity with respect to product price for United Kingdom agriculture is calculated. In addition, the paper investigates the supply function that is implied by input demand functions which contain a geometrically declining lag distribution. The paper concludes by suggesting that the indirect estimation of aggregate supply elasticities may well be preferable to direct estimation of the elasticities.     

Variability in wheat export demand elasticity: Policy implications

Agricultural economists and policy makers in the United States believe that the magnitude of the export demand elasticity is one of the most important parameters used in farm policy decisions. However, past empirical estimates show wide variation in the size of the U.S. export demand elasticity. Reasons for this wide variation go beyond differences in model specification, estimation methods, and period of estimation to involve factors such as trade policies and changes in the supply and demand conditions of foreign countries. In view of the continual variation in magnitude, the elasticity of export demand should be viewed as a variable rather than as a parameter. In this study, U.S. wheat export demand elasticities are computed using a world wheat trade model. The estimates show that the elasticities vary significantly over time. They also reveal that elimination of trade barriers would more than double wheat export demand elasticities.     

Scale Effects and Mark-ups in the US Food and Fibre Industries: Capital Investment and Import Penetration Impacts

Capital investment patterns and import penetration are often alleged to influence firms' costs and prices, and thus economic performance. We examine the impacts of these factors on measures of scale economies, input demand/composition, and market power in the US food and fibre industries. Flexible variable cost functions incorporating quasi-fixity of three categories of private (internal) capital and two external technological and trade (import) factors represent the cost structures of the two industries. Pricing equations, based on inverse demand functions including import prices, represent output decisions. Cost and demand elasticities constructed from this model indicate reduced manufacturing costs from technical and trade, scale and capital effects. This increased cost efficiency arises largely from materials savings in the textiles industry and reduced labour use in the food industry. Mark-up behaviour is exhibited for most of the sample period in the textiles industry, and neither industry appears heavily affected by import prices.     

International market integration and demand: An analysis of the Norwegian and Danish herring market

This article provides a method where pre-tests for international market integration are used to identify market structures before estimating demand systems. The method is applied to the analysis of the European herring market. A Vector Auto Regressive model in Error Correction form is used to identify co-integration vectors between price series and, based on this, to test for the Law of One Price. The Law of One Price is in force between the landing markets for herring in the two largest global supplier countries, Norway and Denmark. Therefore, an inverse demand function is estimated for the combined Norwegian and Danish market. The results are used in the interpretation of the significant increase in the prices of herring on the Danish ex-vessel market in 2001, given the stability of the Danish market. The implication is that even though Denmark did not export to the main Norwegian export markets in the former Soviet Union and Eastern Europe, the Danish landing price is influenced by the situation there.     

PRODUCTION TECHNOLOGY AND INPUT ALLOCATIONS IN SRI LANKAN MULTICROP FARMING

A primal production analysis is conducted of 182 farm households producing multiple outputs in the Sri Lankan dry zone. The approach involves systems estimation of the production functions with first-order equations for variable inputs and permits recovery of the production technology for each crop. Land and family labour are regarded as constraining inputs. Shadow prices are computed for the constraining inputs and yield important implications for increasing household profits. Evidence of global homotheticity in a subset of three inputs is found for three of the crops. Weak separability is rejected in all tested subsets except for fertiliser and chemicals used in the production of vegetables. Input demand elasticities are computed for allocations satisfying necessary and sufficient conditions for profit maximisation. Highly elastic conditional input demands and output supplies are implied.     

An inverse demand analysis with introduction of quality effects: an application to Spanish consumption of fruit and vegetables

This article analyzes consumer preference for fruit and vegetables when, by using time series with socioeconomic characteristics of households, there can be seemingly unobserved quality effects, which are increased by aggregation. The changes in Spanish demand for fresh and processed fruit and vegetables over the period 1987–2000 are discussed. Following previous tests and analyses, quantities are taken as predetermined and prices as matching the offer conditions. Thus, quality effects (based on the nutritional and/or health value of the product) are estimated from the error terms associated with the functions of the unit values. Quality variables are introduced as taste shifters in the inverse demand system (Laitinen–Theil model). The results show the positive effects of quality differences on the normalized price for the group of products through own‐quality flexibilities, and the negative effects between fresh and processed products through cross‐quality flexibilities.