A Cost Function Approach to Dynamic Duality: An Application to the US Cigarette Manufacturing Industry

The dynamic duality econometric approach with the case of multiple outputs is applied to the US cigarette manufacturing industry to test for the presence of adjustment costs and quasifixed inputs with regard to stocks of capital and tobacco. Capital and tobacco stocks are found to be quasi-fixed inputs and the empirical results indicate that there are significant adjustment costs associated with adjusting these inputs. Short- and long-run own- and cross-price elasticities of factor demands are estimated for domestic and imported tobaccoes, materials, tobacco stocks, and capital. Output demand elasticities are also estimated. The two outputs, cigarettes produced for export and for the US market, are examined for equality of marginal costs. No evidence of differences in marginal costs was found. There is evidence that government restrictions on advertising have negative effects on output demand.     

Differentiated products and supply controls in the analysis of agricultural policy reform: the case of tobacco

With a multi-market model of the U.S. tobacco and cigarette industries, we analyze the impact of a reduction in the assistance to U.S. tobacco producers by relaxing production quotas with nonbinding price support and by lowering tariffs on tobacco imports. The results show the importance of incorporating differentiated product and supply control assumptions into agricultural policy analysis.     

The Economic Impact of U.S. Tobacco Products Exports

The economic impacts of increasing U.S. tobacco exports on the U.S. economy are analyzed. Simulation of expanded exports to South Korea and Thailand are conducted. Over $1.1 billion in economic activity and 12,000 jobs were associated with tobacco export increases to these countries. Declining raw tobacco exports to Thailand, however, offset gains associated with greater cigarette sales. The resultant losses totaled $5.3 million in economic activity and over 378 jobs in the U.S.     

A Dynamic Adjustment Model for U.S. Agriculture: 1948-79

A multioutput model is developed within the adjustment cost framework to analyze the structure of dynamic adjustments in U.S. agriculture during the post-war period. An important feature of this model is that the econometric model is consistent with dynamic economic theory. Fluctuations in capital stocks, variable inputs, and outputs are explained by changing opportunity costs. Empirical results indicated that durable equipment, farm-produced durables, and family labor exhibited significant rigidity in adjustment as a response to exogenous shocks. Surprisingly, the hypothesis that real estate was a variable input could not be rejected. The univariate flexible accelerator hypothesis, which is widely maintained in most agricultural adjustment studies, is inconsistent with the data.     

Output and input bias effects of U.S. direct payments

This study examines the national effect of U.S. direct payments on the extent and direction of biased technical change on U.S. agriculture. We also assess the economic significance of the estimated bias effects for economic policy modeling endeavors involving a reduction of domestic support payments. A two outputs (livestock and crops) and four inputs (labor, capital, land, and material) translog cost function was estimated from national time series (1948–2011) data. Results indicate that payments do not induce output‐biased technical change. We do find evidence of Hicksian bias that is land using and material input saving attributable to support payments. Global computable general equilibrium simulations suggest that price and output effects of discontinuing direct payments are 1/4 to 1/3 the size once the bias effects are incorporated.     

Importing terrestrial biocapacity: The U.S. case and global implications

Human societies depend for their survival on goods and services provided by both local and global ecosystems. For most of history, people used mainly local resources. Increasingly, however, globalization and trade enable consuming populations everywhere to support themselves on the output of distant ecosystems. This is potentially problematic because of global change and because the spatial separation of material production (including resource exploitation) from consumption eliminates the direct negative feedback that normally occurs when people dependent on local ecosystems degrade those ecosystems. With spatial separation comes psychological separation. Modern consumers remain generally unconscious of their growing reliance on biophysical goods and services produced half a world away and see no connection between their consumer lifestyles and distant ecological consequences. The purpose of this paper, therefore, is to raise a cautionary flag about unfettered trade and to show the value of accounting for trade-related physical flows and their impacts on natural capital in sustainability analyses. Using the United States as an example, we present an analytical method that can locate and measure the ecosystem area embodied in any population's imports of renewable resources. We quantify U.S. imports from specific countries around the world; we estimate the area of terrestrial ecosystems in those countries devoted to consumers in the U.S. and we highlight both increasing U.S. imports and their potential impact on extra-territorial ecosystems. This method creates indirect (conceptual) feedback between consumption and ecosystems integrity which we hope will partially replace the physical feedback neutralized by globalization. Such analyses can help generate public and decision makers’ awareness of both their dependence and their impacts on, distant natural capital stocks. This in turn should increase interest in establishing improved co-management regimes to maintain the stability and reliability of such now obligatory relationships.     

Determinants of Income Growth in Metropolitan and Nonmetropolitan Labor Markets

This article analyzes determinants of growth across labor markets in the United States, using a production function approach based on four inputs: labor, manufacturing investment, human capital investment, and public capital investment. We find little role for public capital investment in growth, but that manufacturing investment spurred growth in nonmetropolitan areas, in contrast to metropolitan areas. We also find that human capital investment mattered more for metropolitan areas than for nonmetropolitan areas. Further, the presence of more colleges and universities, more household amenities, and lower tax rates are all found to have encouraged human capital accumulation in U.S. labor markets.     

U.S. Demand for Imported Wines

The U.S. is viewed as a lucrative market outlet for surplus wines produced in the leading wine exporting countries in the world. Structural U.S. import demand functions were estimated for French, Italian, Spanish, Portuguese, and German wines as well as for those that are U.S. produced. The equations were estimated with two-stage least-squares because of simultaneity between quantity demanded and price. Direct price, cross, and income elasticities were calculated to determine the degree of competiveness among the various wines of differing origin. Two separate groups of wine were identified. First, U.S. produced, French, and German wines were in one group. Spanish, Portuguese, and Italian wines comprised the second group. The latter group also encountered competition from the first group of wines.     

Post-War Productivity Patterns in U.S. Agriculture: Influences of Aggregation Procedures in a State-Level Analysis

Annual data for forty-eight states are used to account for changes in the composition of input and output aggregates over space and time, and thereby to obtain new evidence on changes in inputs, outputs, and productivity in U.S. agriculture. The measures change significantly when we use state-specific rather than national prices and when we allow for changes in the composition of the aggregates, especially of labor and capital inputs. We compare our estimates and those reported by Ball et al. ( American Journal of Agricultural Economics 81(1999):164–79). The national estimates are similar but substantial differences are found in state-level productivity growth.     

Distinguishing the Source of Market Power

Structural models used to measure market power, though widely employed, continue to be criticized. We compare alternative market power tests, including nonparametric and Solow residual-based (SRB) tests. We develop SRB methods that permit nested testing for both monopolistic and monopsonistic market power by the same firm. These tests and a set of nonparametric tests are implemented to examine market power exertion by U.S. cigarette manufacturers from 1977 to 1993. All tests indicate that cigarette manufacturers exerted monopsonistic power in the upstream tobacco market. They are mixed on whether monopolistic power exertion was exerted in the downstream market.     

Analysing Production Technology and Risk in Organic and Conventional Dutch Arable Farming using Panel Data

This paper compares the production technology and production risk of organic and conventional arable farms in the Netherlands. Just–Pope production functions that explicitly account for output variability are estimated using panel data of Dutch organic and conventional farms. Prior investigation of the data indicates that within variation of output is significantly higher for organic farms, indicating that organic farms face more output variation than conventional farms. The estimation results indicate that in both types of farms, unobserved farm‐specific factors like management skills and soil quality are important in explaining output variability and production risk. The results further indicate that land has the highest elasticity of production for both farm types. Labour and other variable inputs have significant production elasticities in the case of conventional farms and other variable inputs in the case of organic farms. Manure and fertilisers are risk‐increasing inputs on organic farms and risk‐reducing inputs on conventional farms. Other variable inputs and labour are risk increasing on both farm types; capital and land are risk‐reducing inputs.     

Imports versus Domestic Production: A Demand System Analysis of the U.S. Red Wine Market

The U.S. wine market experienced rapid growth in all facets—production, consumption, exports, and imports—over the past decade. Red wine imports more than tripled while consumption of domestically produced red wines doubled. This research estimates demand elasticities of U.S. red wine imports from five countries accounting for over 90% of imports—Italy, France, Spain, Australia, and Chile—using the first-difference version of the almost ideal demand system (AIDS). These elasticities are compared with those for domestically produced red wine. Results for conditional expenditure elasticities indicate that the U.S. red wine industry gains over imports when U.S. consumers' total expenditures on red wine increase. However, comparing own- and cross-price elasticities reveals an increase in the price of U.S. red wine results in a decline in quantity demanded six times greater than for French and Italian red wines and over 20 times greater than other import countries, thus harming the U.S. red wine industry. Empirical results suggest that U.S. red-wine producers could increase their total revenue by decreasing prices, while Italian and French producers can increase total revenues by increasing them.     

Estimating the U.S. Import Demand for Melons: A Dynamic Analysis Approach

The United States is one of the world's leading consumers as well as one of the world's leading producers of melons. However, U.S. melons are produced only from May through December. In order to supplement the domestic demand and make melons available year-round, the United States imports melons from Latin American countries. This article analyzes the U.S. demand for imported fresh and frozen melons using monthly data on import volumes and values. A static and a dynamic linear Almost Ideal Demand System are estimated using Seemingly Unrelated Regression (SUR). The estimated parameters are used to estimate the short- and long-run price and expenditure elasticities.     

Technical efficiency,herd size,and exit intentions in U.S. dairy farms

The U.S. dairy industry has seen major restructuring in recent decades. A sharp decline in the number of U.S. dairy farms and an increase in average herd sizes have accompanied exits, which have been concentrated among smaller herds. Given that more productive farms are better positioned to increase operation size and to continue operation, we hypothesize that the more technically efficient farms are better able to expand and also have stronger incentives to continue production. Using data from the USDA's 2010 ARMS Phase III, Dairy Production Practices and Costs and Returns Report, we estimate technical efficiency using stochastic production frontier analysis with endogenous inputs. The efficiency estimate is then incorporated into the analysis of exit intention and herd size. The results confirm our hypotheses that smaller and less efficient farms are more likely to exit and that more efficient dairy farms tend to expand herd size. Moreover, farms without successors but with older and more educated operators are more likely to exit.     

U.S. Canned Tuna Supply and Demand

Abstract

A 3SLS econometric model is used to estimate price elasticities of supply and demand for domestically produced and imported canned tuna in the U.S. market. In addition, a VAR model is developed to examine the relations between imports and domestically produced canned tuna. For domestically produced canned tuna, a 3SLS estimation of a structural econometric model yielded a coefficient for price elasticity of supply of 0.2 and of own-price demand of ?0.3. Such price inelasticities are expected of a fishery exploited at or near its maximum yields (inelastic supply), and a consumer product widely viewed as almost a necessity in a well-stocked pantry (inelastic demand). In addition, the model yielded a cross-price elasticity of demand with respect to the price of imported canned tuna of 0.45. Additional results include an income elasticity U.S. demand for domestically packed tuna of 0.83; a cross-price elasticity with the price of bread (a complement) of ?0.33, a cross-price elasticity for the price of ground meat (a substitute) of 0.30. With respect to imported canned tuna in the U.S. market, the corresponding elasticities estimated in the model are ?1.3 (own-price demand), 3.5 (income elasticity), ?1.2 (cross-price with the price of bread) and 2.5 (cross-price with the price of ground meat).

For canned tuna company managers, the results provide useful information about the likely effects on sales that would come from their own price changes, from changes in the price of imported canned tuna, and from price changes in the markets for complementary and substitute products. They can also use our results in discussions with U.S. trade negotiators, who are frequently faced with disputes over tariffs, market access, and other trade issues.     

Revisiting U.S. country of origin labeling trade damage estimates how does an equilibrium displacement model perform under different scenarios

Mexico and Canada successfully challenged the U.S. mandatory country of origin labeling (COOL) requirements for beef and pork as inconsistent with World Trade Organization (WTO) rules, which ultimately led to arbitration over the level of trade lost due to the COOL measure. During this phase of the dispute, Mexico, Canada, and the United States provided the Arbitration Panel with estimates of the trade losses caused by COOL that were produced using different quantitative methods. The U.S. estimates were based on an equilibrium displacement model (EDM). This article presents a version of the EDM used by the U.S. Government to calculate trade losses due to COOL. The Panel developed its own analysis combining econometric analysis and an EDM that used only supply-side information to calculate changes in Canadian and Mexican livestock trade. The U.S. EDM includes both the supply and demand sides of the market. We use the U.S. EDM and the Panel's assumptions to re-estimate the value of lost trade due to COOL. The inclusion of demand-side effects and domestic COOL costs produces lower estimated trade damages than those produced using the Panel's analysis, validating the EDM as a useful quantitative tool for this type of trade policy analysis.     

The End of the Federal Tobacco Program: Economic Impacts of the Deregulation of U.S. Tobacco Production

In 2004, Congress ended the sixty-six-year-old federal tobacco program, effectively deregulating production and prices. With deregulation came a buyout package, with cigarette manufacturers agreeing to pay more than $3 billion in present value to quota owners and farmers. While the dollar values of compensation payments are known, the effects of the historic legislation on tobacco markets are uncertain. We examine these effects and their welfare consequences. We also consider the appropriateness of the buyout payments under alternative views of economic damages due to the quota system's demise.     

Production technologies in Ethiopian agriculture

This article examines the characteristics of and choice among two production technologies in Ethiopian agriculture, one with fertilizer and the other without, using 1989–90 farm-level data. For northwest and central Ethiopia, fertilizer usage determinants are estimated simultaneously with technology-specific production functions. For southern Ethiopia, where fertilizer is rarely used, a single production function is estimated. Three conclusions emerge. First, fertilizer use is not significantly affected by a farm's stocks of capital or land. This is consistent with the fact that fertilizer allocation decisions under the deposed Mengistu regime were politicized to the point where farmers had little control over use. Second, fertilizer is associated with a smaller factor share for cattle and a larger share for land, meaning that those who control land may gain relative to the individual farmers who own cattle as the country develops agriculturally. Third, farms without fertilizer in northwest and central Ethiopia tend to be too small, a problem due to population pressures on the land and communal methods of land allocation. This suggests that land allocation institutions should adjust by distributing land to a smaller but more economically viable number of farmers.     

Excerpts from the EU‐integration Story of Hungarian Agriculture: Heading Where?

Cereal production in Hungary doubled in 2004/2005 over the previous year and was 4 per cent lower in 2005/2006. There were 3.9 million tones of cereals taken into intervention in the 2004/2005 season, while until January 8, 2006, an additional 3.7 million tonnes of new crop were offered. High transport cost is a serious drawback for wheat and maize, produced under otherwise good natural conditions in the CEE region, in competing within the EU or in third country markets. The combined effects of an intervention price above ε90 a tonne, the implementation of the SPS and the decoupling of the national 'top-up' for arable crops together with the introduction of compulsory set-aside are unlikely to reduce cereal production in Hungary. Under normal conditions, 14.5–15 million tonnes of cereal stocks could be accumulated by 2010. In the pre-accession years livestock producers in Hungary enjoyed some direct subsidies but they had almost no access to investment and capital aids. This and the late approval of rural development programmes contributed largely to the decline in production. Despite huge excess stocks of cereals, the prospects for these major feed grain consuming sectors to expand look rather slim in the mid-term, due mainly to structural problems and the lack of capital for modernisation. Taken together these factors are likely to keep cereal market prices in Hungary under pressure in the next few years, despite the implementation of the SPS.     

Stochastic Biases in Technical Change in U.S. Agriculture: A Bootstrap Approach

Having argued that the modeling of technical change as a smooth deterministic function of time is likely to misrepresent the true nature of technical change, this paper reexamines biased technical change in U.S. agriculture using a system of share equations with unobserved components errors, with technology treated as a stochastic unobserved variable. Employing data to represent the aggregate output and input of the U.S. agricultural sector over the period 1947–94, significant factor biases were found that appear to be linearly independent and do not appear to be smooth and deterministic. Technical change in U.S. agriculture appears to have been biased toward saving expenditure on labor at the expense of expenditure on intermediate inputs, with some small saving on the expenditure on capital inputs over the entire period 1947‐94. The paper also employs a bootstrapping approach in order to obtain finite sample tests with approximately the correct size under less stringent assumptions about the data generating process than assumed by maximum likelihood (ML) based approaches. Using these finite sample values significantly alters the conclusions reached regarding the nature of technical change. Après avoir démontré que la modélisation du changement technique par une fonction lissée déterministe du temps peut ne pas représenter correctement sa vraie nature, cet papier re‐examine le biais du changement technique dans l'agriculture américaine à partir d'un systè d'équations de parts avec des erreurs non observées et une technologie traitée comme une variable stochastique non observée. A partir de données représentant la production et les intrants agrégés dans le secteur agricole américain sur la période 1947–1994, nous constatons que les biais significatifs sont indépendants linéairement et qui ne sont pas des fonctions déterministes lissées du temps. Le changement technique dans l'agriculture américaine est biaisé en faveur des réductions de dépenses de travail aux dépends des dépenses sur les intrants intermédiaires et montre quelques économies sur les dépenses de capital sur la période 1947‐1994. L'emploi des techniques de bootstrapping permet d'obtenir des tests sur échantillons finis avec des hypothèses moins exigeantes que celles imposées par les approches de maximum de vraisemblance. Les conclusions obtenues à partir de ces tests sont significativement différentes que celles obtenues par les méthodes traditionnelles concernant le changement technique.