A rational foundation for wishful exchange rate forecasts

Professor Takatoshi Ito in a recent American Economic Review paper documents that exporters and importers have biased exchange rate forecasts and the biases are in opposite directions. At first glance, it is difficult to provide a rational foundation for such behavior. Professor Ito hypothesizes that these forecasts are the result of wishful expectations. However, if forecasts are stochastic, then minimization of a quadratic loss function results in a rational hedge applied to either $/¥ or ¥/$. The different perspectives of importers and exporters determines which form is hedged and determines the direction of the bias.     

Comparative Advantage in Demand: Experimental Evidence of Preferences for Genetically Modified Food in the United States and European Union

The United States (US) exports more than US$6 billion in agricultural commodities to the European Union(EU) each year, but one issue carries the potential to diminish this trade: use of biotechnology in food production. The EU has adopted more stringent policies towards biotechnology than the US. Understanding differences in European and American policies towards genetically modified (GM) foods requires a greater understanding of consumers’ attitudes and preferences. This paper reports results from the first large‐scale, cross‐Atlantic study to analyse consumer demand for genetically modified food in a non‐hypothetical market environment. We strongly reject the frequent if convenient assumption in trade theory that consumer preferences are identical across countries: the median level of compensation demanded by English and French consumers to consume a GM food is found to be more than twice that in any of the US locations. Results have important implications for trade theory, which typically focuses on differences in specialization, comparative advantage and factor endowments across countries, and for on‐going trade disputes at the World Trade Organization.     

An instrumental variable approach to distinguishing perceptions from preferences for beer brands

Recent developments in behavioral economics have prompted interest in identifying how product perceptions and beliefs influence decision making. Using a branded discrete choice experiment for beer, this article uses the control function approach and plausible instruments to correct for the endogeneity problem in a way that is applicable in a wide range of circumstances. Even after correction, we find that perceptions substantially affect consumer choices. In the context of brand equity for beer brands, we find that the perceived taste and brand familiarity are key determinants of choice.     

Consumer Behavior, Public Policy, and Country-of-Origin Labeling

Recent work by agricultural economists has failed to adequately identify why consumers desire country-of-origin labeling, a key piece of information needed to determine whether a market-failure exists. This paper brings to the attention of agricultural economists a sizable body of literature on country-of-origin effects from the marketing and business disciplines. Based on this literature, we draw a distinction between several consumer motivations for origin labels and we identify which of these is cause for public policy. We propose several research questions that require answers if the consequences of country-of-origin labeling policy are to be fully understood.     

Transatlantic Differences in Consumer Preferences

Transatlantic Differences in Consumer Preferences The EU prohibits imports of hormone-treated beef and is about to impose labelling and traceability requirements on GMOs. Both policies have created growing unease on the part of exporting countries. The EU claims that public health concerns and consumers' preferences justify the trade restrictions, while exporters maintain that the rules serve primarily to protect domestic agriculture by limiting international competition. In a consumer study in France, Germany, the UK, and the US, we determine if consumers' preferences, as reflected in willingness-to-pay estimates, are different across the Atlantic. Our study covered two products: beef from cattle treated by hormones and from cattle fed genetically modified corn. Our results suggest that French consumers are willing to pay more than US consumers for beef from cattle not administered hormones. There are, however, no significant differences among German, UK and US consumers. In contrast, consumers in France, Germany and the UK are willing to pay more for beef from animals not fed GM corn than are US consumers. Given these results and current policy developments, it seems unlikely that the EU will retract its labelling requirements on GM food and feed, and future trade disputes are likely to emerge. Des consommateurs différents d'une rive de l'Atlantique à l'autre l'Union Européenne interdit l'importation de viande aux hormones, et s'apprête à imposer des normes d'étiquetage et de traçabilité pour les OGM. Dans chaque cas, les pays exportateurs ont été choqués par ces politiques. l'UE soutient que la santé publique et les préférences des consommateurs justifient de telles entorses au libéralisme, cependant que les pays exportateurs restent dans l' idée qu'il ne s'agit là que de moyens de protéger ragriculture rationale de la concurrence internationale. Nous avons essayé de vérifier si les préférences rationales, telles qu'elles sont définies par le consentement à payer, sont réellement différentes d'une rive à l'autre de l'Atlantique, à partir de l'étude d'un échantillon de consommateurs recrutés en France, Grande Bretagne, Allemagne et Etats Unis. Notre étude concerne deux produits:le bœuf traité aux hormones, et le bœuf nourri au maïs génétiquement modifyé. Les résultats montrent que les Français sont mieux disposés que les Américains à payer plus cher du bceuf non traité aux hormones. En dehors de cela, il n'y a pas de grosses différences entre les consommateurs anglais, allemands, et américains pour ce produit. Par contre, pour ce qui concerne le bœuf nourri au maïs OGM, il apparaît que les Britanniques, les Français et les Allemands sont bien plus disposés que les Américains à payer un surprixpour l'éviter. Dans ces conditions, et au vu des derniers développements politiques, on ne voit pas comment éviter que l'UE ne maintienne ses exigences en matière d'OGM pour l'alimentation humaine ou celledu bétail, ce qui entraînera sans doute une nouvelle guerre commerciale. Transatlantische Unterschiede bei verbraucherpräferenzen Die EU verbietet den Import von ormonbehandeltem Rindfleisch und wird in Kürze Rückverfolgbarkeit und Kennzeichnungspflicht bei GVOs verlangen. Diese beiden Maßnahmen werden von den Exportländem mißbiliigt. Die EU beruft sich darauf, dass diese Handelsrestriktionen durch die Sorge um die öffentliche Gesundheit und durch die Verbraucherpräferenzen gerechtfertigt seien. Die Exporteure führen an, dass diese Verordnungen primär dem Schutze der einheimischen Landwirtschaft dienten, da sie den internationalen Wettbewerb einschränken. In einer Verbraucherstudie in Frankreich, Deutschland, Großbritannien und den USA wird anhand von Schätzungen der Zahiungsbereitschaft ermittelt, ob es bei den Verbraucherpräferenzen tatsächlich transatlantische Unterschiede gibt. Die Studie umfasste zwei Erzeugnisse: Rindfleisch von hormonbehandelten Tieren und von Tieren, die mit genetisch verändertem Mais gefüttert worden waren. Die Resultate legen es nahe, dass französische Verbraucher mehr als US amerikanische Verbraucher bereit sind, einen höheren Preis für Rindfleisch von Tieren zu zahlen, welchen keine Hormone verabreicht wurden. Es sind jedoch keine signiflkanten Unterschiede zwischen deutschen, britischen und US-amerikanischen Verbrauchern vorhanden. Andererseits sind Franzosen, Deutsche und Briten mehr als US-amerikanische Verbraucher bereit, einen höheren Preis für Rindfleisch von Tieren zu zahlen, welche nicht mit genetisch verändertem Mais gefüttert wurden. In Anbetracht dieser Ergebnisse und der aktuellen politischen Entwicklungen erscheint es unwahrscheinlich, dass die EU die Verordnung zur Kennzeichnung von genetisch veränderten Lebensmitteln und Futtermitteln zurücknehmen wird. Zukünftige Handelskontroversen sind zu erwarten.     

An Empirical Investigation into the Excessive-Choice Effect

Recent marketing and psychological studies have shown that more choice does not always benefit consumers. This excessive-choice effect (ECE) is examined empirically using food items in four experiments. The first experiment investigates whether people would voluntarily reduce their choice-set size. The second seeks to replicate previous experimental results. The third and fourth experiments employ nonhypothetical Becker-DeGroot-Marschak (BDM) soda auctions and hypothetical ground beef choice experiments to further detect the prevalence of the ECE in alternative settings and explore the role of personality in decision tasks. Results suggest the ECE exists, but is less prevalent than previous studies suggest.     

Empirical properties of duality theory

This research examines selected empirical properties of duality relationships. Monte Carlo experiments indicate that Hessian matrices estimated from the normalised unrestricted profit, restricted profit and production functions yield conflicting results in the presence of measurement error and low relative price variability. In particular, small amounts of measurement error in quantity variables can translate into large errors in uncompensated estimates calculated via restricted and unrestricted profit and production functions. These results emphasise the need for high quality data when estimating empirical models in order to accurately determine dual relationships implied by economic theory.     

Willingness-to-Pay Estimates and Their Relevance to Agribusiness Decision Making

Although methods such as contingent valuation have received a great deal of attention in environmental valuation literature, fewer studies have reported willingness-to-pay estimates with agribusiness applications. Because agribusinesses are increasingly interested in producing and selling differentiated goods and services whose values has not been established by well-functioning markets, we provide a short introduction to willingness-to-pay methodology and provide a discussion of several different methods used to estimate willingness-to-pay. More specifically, we discuss how much of the work in environmental and experimental valuation literature can be extended to agribusiness applications, which have their own set of unique issues.