The price elasticity of demand for pharmaceuticals amongst high-income older Australians: a natural experiment

Most high-income older Australians became eligible for a pharmaceutical concession through a 1999 policy change. I exploit this natural experiment to estimate their price elasticity of demand for pharmaceuticals. The preferred model is a nonlinear Instrumental Variable (IV) regression, estimated on nationally representative repeated cross-sectional survey data using the Generalized Method of Moments (GMM). No significant evidence is found for endogenous take-up, and so cross-sectional estimates are also considered. Taking all of the results into account, the ‘headline’ estimate is ?0.1, implying that quantity demanded is not highly responsive to price.     

双轨制度下中国农户粮食供给反应分析

粮食的定购价格和数量是否影响粮食供给 ,学术界对此存在着相互对立的观点。本项研究试图从理论和实证两个方面对此问题做进一步分析 ,本文利用边际理论、局部调整模型和价格预期理论建立了双轨制度下三种不同的供给反应模型。实证分析表明 ,定购数量和定购价格都对粮食产出产生显著影响 ,推进粮食购销市场化改革是充分发挥各地比较优势的重要条件。     

Controlling monopoly power in a double-auction market experiment

There is robust evidence in the experimental economics literature showing that monopoly power is affected by trading institutions. In this paper, we study whether trading institutions themselves can shape agents' market behavior through the formation of anchors. We recreate experimentally five different double-auction market structures (perfect competition, perfect competition with quotas, cartel on price, cartel on price with quotas, and monopoly) in a within-subject design, varying the order of markets implementation. We investigate whether monopoly power endures the formation of price anchors emerged in previously implemented market structures. Results from our classroom experiments suggest that double-auction trading institutions succeed in preventing monopolists from exploiting their market power. Furthermore, the formation of price anchors in previously implemented markets negatively impacts on monopolists' power in later market structures.     

Residential property price differentials of waste plants: evidence from Beijing,China

As a primary source of urban pollution, waste plants release toxic gases and polluted waste water that can cause great harm to human health and contaminate water resources. The adverse impact of waste plants on environmental threaten the quality of life of surrounding residents which will be reflected in residential property values. In this study, we develop a hedonic price model to estimate the environmental externalities of waste plants based on a panel dataset for real-estate transactions in Beijing from 2011 to 2015. We apply fixed effects and a Heckman selection model to control for omitted variable bias and sample selection bias and then construct price counterfactuals for properties. The price differentials between expected and counterfactual prices are then calculated. Our empirical results suggest that waste plants negatively influence residential property prices. Additionally, the influences of other factors, such as school district, traffic convenience, and average housing area, on property prices are consistent with common sense, though they are weakened for properties within three kilometers of waste plants.     

The empirical effects of competition on third‐degree price discrimination in the presence of arbitrage

Since Borenstein ( 1985 ) and Holmes ( 1989 ), a theoretical and empirical literature has emerged that examines the effects of competition on third‐degree price discrimination. Since transaction costs involved in conducting arbitrage are typically unobserved, empirical investigations in this area have largely been restricted to markets such as for air travel where arbitrage is difficult, if not impossible. Using an entirely novel dataset, this paper documents the effect of competition on price discrimination in the presence of arbitrage in the Canadian online sports betting market where prices for Canadian teams are higher than in the world market. I observe how the prices of Canadian teams change in real time in response to the presence of arbitrageurs that establish Canadian sportsbooks’ observable marginal opportunity costs. I exploit the existence of government betting outlets not subject to arbitrage to obtain reduced form counterfactual estimates of the extent to which competition affects price discrimination in the presence of arbitrage. In this new empirical environment, I find results consistent with the airline literature: competition reduces overall price dispersion and markups, but dispersion and markups shrink more for those in the “strong” market than the “weak” market.     

The price of owning a car: an analysis of auction quota premium in Singapore

Faced with dilemmas parallel to countries besieged by road congestions and limited land resources, Singapore has chosen to adapt a Vehicle Quota System (VQS) whereby car owners are required to bid for a licence in an auction before their vehicles are allowed onto the road. In this study, the behaviour of VQS auction prices is examined using a structural time series approach. For outliers that are not observable from innovations, auxiliary residuals with dummy variables are used to supplement the analysis. In general, prices exhibit a fairly constant seasonal pattern. The inclusion of monthly VQS quotas released by the transport regulatory body and the national stock market index is not useful in explaining the observed price behaviour. Interestingly, a basic structural model with stochastic components seems to fit the data best.     

KIDNEY TRANSPLANTS AND THE SHORTAGE OF DONORS: IS A MARKET THE ANSWER?

This article examines the problem of kidney shortages for transplant in the United States. Following a study by Kaserman and Barnett, we reexamine the viability of allowing a market for cadaveric kidneys and estimate the implied equilibrium price based on our survey responses. In sharp contrast to the findings of Kaserman and Barnett, we estimate that a market equilibrium price for cadaveric kidneys may be prohibitively high. Consequently, we support other policy alternatives to increase supply, particularly presumed consent and mandated choice. Our findings also highlight the importance of obtaining data through experiments, rather than a survey, to estimate the impact of financial incentives. ( JEL I18, I12, I00)     

An analysis of bargaining power for milk cooperatives and milk processors in Florida

The Florida dairy market has a few fluid milk processors and many dairy farmers. The dairy farmers are represented in negotiation with the processors by a cooperative. This research builds a theoretical model of bargaining between the processors and a cooperative. The model is applied to the Florida dairy market to examine price negotiations between Florida milk processors and a dairy cooperative. An expectation maximization (EM) algorithm along with maximum likelihood estimation is used to estimate the econometric disequilibrium model with time series data for the period of October 1998 to May 2009. The results show that the class I price set by the Federal Milk Marketing Order is the major factor influencing the cooperative’s supply reservation price. Negotiated quantity and production seasonality affect the processors’ demand reservation price. The processors appear to be more patient and have higher average bargaining power (0.8804) than the cooperative (0.1196). The highest (lowest) bargaining power for the cooperative (processors) occurred in 2008 and the lowest (highest) bargaining power for the cooperative (processors) occurred in 2001.     

Supply management and household poverty in Canada

The regulation of the Canadian dairy and poultry industries through production quotas (also known as supply management) is widely believed to result in higher consumer prices that disproportionately impact poorer households. Using the most recent Survey of Labour and Income Dynamics (Statistics Canada 2013), we estimate the number of Canadians pushed below the poverty/low-income threshold as a result of this policy as ranging between 133,000 and 189,000 individuals.     

The Dynamics of Markups and Inventories in Retailing Firms

This paper is concerned with the interaction between price and inventory decisions in retailing firms and its implications for the dynamics of markups and the existence of sales promotions. We consider a model where a monopolistically competitive retailer decides price and inventories, and assumes lump-sum costs when placing orders or changing nominal prices. In this model, the existence of stockout probabilities and fixed ordering costs generate a cyclical price behaviour characterized by long periods without nominal price changes and short periods with very low prices ( i.e. sales promotions). We estimate this model using a unique longitudinal dataset with information about retail and wholesale prices, inventories, orders, and sales for several brands in a supermarket chain. Based on the estimated model we perform several counterfactual experiments that show the important role that inventories and fixed ordering costs play in the dynamics of retail prices and the frequency of sales promotions in this dataset.     

Hidden costs of supply management in a small market

Canada regulates its dairy and poultry industries through supply management. The supply‐management programs use target prices, production quotas and import tariff‐rate quotas to raise domestic prices. Canadian supply‐managed producers cannot export their output to world markets as exports would be considered subsidized under World Trade Organization rules. In this paper, we show that once foregone export opportunities are accounted for, supply management may no longer be beneficial to domestic producers of the supply‐managed commodities. The extent to which foregone profits from exports dominate domestic rents depends on Canada's comparative advantage, domestic market elasticities and the extent of supply management distortion in the domestic market.     

The structural effect of cooperatives on price volatility in the European dairy sector

Theoretical models and empirical evidence suggest that high market shares of cooperatives can force investor-oriented firms to pay higher producer prices within a region. In the same vein, cooperatives may force investor-oriented firms to reduce price volatility. We use panel data from 27 European Union member states over the period 2001–2015 to investigate how the market share of cooperatives in a country affects milk price volatility. Our key finding is that a higher market share of cooperatives reduces price volatility at the national level. Volatility is influenced by a number of other variables, such as fluctuation in raw milk production, oil price volatility spillover and the number of dairy processors. Policymakers should consider that the promotion of cooperatives might positively affect price stability in the dairy sector.     

The Welfare and Resouce Allocation Implications of the U.S.Dairy Quotas

This paper examine the welfare and resource allocation implications of the U.S. dairy quotas. A computable general equilibrium model detailing five dairy sectors and nine aggregate sectors is calibrated to a 1989 benchmark of the U.S economy. The model is used to simulate the removal of the U.S.dairy quotas both the with and without a first-best subsidy to maintain a dairy farm output objective. Welfare, production, trade, and employment results are provided. The welfare cost of the U.S dairy quotas ranges from $0.7 to $1.0 billion. The first-best subsidy ranges from $2.0 to $2.3 billion or approximately $1.4 million per full-time equivalent job maintained in the dairy farm sector [F13, Q17]     

Preferences with and without prices - does the price attribute affect behavior in stated preference surveys?

The experimental as well as the non-market valuation literature include several examples of how an introduced price can affect behavior in otherwise not expected ways. It has become standard to include a price vector as an attribute in choice experiments, something that enables us to estimate a marginal willingness to pay for other attributes. We test the impact on preferences by an inclusion of a price in a choice experiment. Preferences are affected, as might be expected. However, also the relative ranking of individual attributes is affected.      

Cointegration relationships and hedonic pricing of differentiated commodities: an application to price dynamics in the US dairy sector

This study investigates the implications of hedonic pricing for price dynamics of differentiated commodities. A conceptual model of hedonic pricing is developed under a Leontief technology, showing how commodity prices reflect the underlying value of their components. Implications for the existence of cointegration relationships among commodity prices are derived. An application to the pricing and dynamics of selected US dairy commodities is presented. It provides evidence on the role of component valuation in the dynamics of dairy commodity prices in the short run as well as in the long run. Distinguishing between market regime and government regime (when the government price support is active), the analysis finds significant differences in dairy price dynamics between the two regimes.     

Effects of mineral-commodity price shocks on monetary policy in developed countries

This article investigates effects of changes in mineral commodity prices on monetary policy. Using macroeconomic data from three mineral-producing countries (Australia, Canada and New Zealand) and two non-mineral-resource countries (USA and UK), I estimate the impulse response functions of the policy interest rates and the core consumer price index (CPI) inflation rates to mineral-commodity price shocks. I find that the central banks in both groups of the examined countries significantly respond to mineral-commodity price shocks. In responses to an unexpected 10% increase in mineral commodity prices, the central banks are estimated to increase their policy interest rates by approximately 0.8 percentage points. Moreover, the central banks seem to take anticipatory policy reactions to control core CPI variations triggered by these shocks. Thus, mineral commodity prices would act as important determinants of the monetary policies in both groups of the examined countries. These findings would be useful for analysing Taylor rules in their countries. However, effects of the increase in their policy interest rates on core CPI inflation cannot be identified for the examined countries.     

The effect of coffee price shock on school dropout: new evidence from the 2008 global financial crisis

This article examines the effect of coffee price shock on the school dropout status of children in rural Ethiopia. To identify the effect, I exploit the exogenous coffee price shock caused by the 2008 global financial crisis. Using a unique rural data set collected before and shortly after the crisis, I compare the school dropout status of children in coffee-producing and non–coffee-producing villages. The difference-in-difference estimate suggests that the decline in the global price of coffee during the financial crisis increased school dropout rates among children aged 15–18 in coffee-producing villages. The effect is more pronounced among female children in this age group.     

Structural transformation and the oil price

What part of the high oil price can be explained by structural transformation in the developing world? Will continued structural transformation in these countries result in a permanently higher oil price? To address these issues I identify an inverted-U shaped relationship in the data between aggregate oil intensity and the extent of structural transformation: countries in the middle stages of transition spend the highest fraction of their income on oil. I construct and calibrate a multi-sector, multi-country, general equilibrium growth model that accounts for this fact by generating an endogenously falling aggregate elasticity of substitution between oil and non-oil inputs. The model is used to measure and isolate the impact of changing sectoral composition in the developing world on global oil demand and the oil price in the OECD. I find that structural transformation in non-OECD countries accounts for up to 53% of the oil price increase in the OECD between 1970 and 2010. However, the impact of structural transformation is temporary. Continued structural transformation induces falling oil intensity and an easing of the upward pressure on the oil price. Since a standard one-sector growth model misses this non-linearity, to understand the impact of growth on the oil price, it is necessary to take a more disaggregated view than is standard in macroeconomics.     

Relative price fluctuations in a two-sector model with imperfect competition

Counter-cyclical fluctuations in the price of investment in consumption units are often attributed to investment-specific technology shocks. This paper looks at an additional source for such fluctuations: sector-specific markup variations, the idea being that pro-cyclical competition and the higher variability of investment compared to consumption pushes down the relative price of investment during expansions. I find that such endogenous movements in sector-specific markups can account for up to about one quarter of the observed fluctuations in the price of investment.     

Evidence of a modest price decline in US broadband services

In this paper, we construct a consumer price index for broadband services in the United States using over 1500 service contracts offered by DSL and cable providers from 2004 through 2009. This exercise frames a range of open questions about measuring price changes in a manner that informs policy discussions about US broadband services. We employ approaches used commonly for constructing a consumer price index by using a mix of matched-model methods and hedonic price index estimations to adjust for qualitative improvements. We find a quality-adjusted price decline, but the evidence points towards a modest decline at most. Our estimates of the price decline range from 3% to 10% in quality-adjusted terms for the 5-years period, which is faster than the BLS estimates for the last 3 years. In contrast to other innovative industries that experience rapid price declines, such as computers or integrated circuits, the modest price decline for broadband services raises many questions.