Modeling Processor Market Power and the Incidence of Agricultural Policy: A Non-parametric Approach / Rachael E. Goodhue, Carlo Russo.

Format:

Book

Author/Creator:

Goodhue, Rachael E.

Contributor:

National Bureau of Economic Research.

Russo, Carlo.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16706.

NBER working paper series no. w16706

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Modeling Processor Market Power and the Incidence of Agricultural Policy

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

This paper examines interactions between market power and agricultural policy in the U.S. wheat flour milling industry using a non-parametric approach. The analysis focuses on marketing loan and pre-1986 deficiency payment programs; farmers' payments from these programs are dependent on whether or not the market price exceeds a "policy" price. It assesses if the payments trigger a change in the underlying economic behavior of the milling industry, and any resulting change in the flour-wheat price margin. The analysis compares the outcomes of using constrained and unconstrained sliced inverse regressions in order to identify the significant factors affecting millers' pricing behavior. In both cases, the link functions are then estimated using a non-parametric regression of prices on these factors. Constraining the factors in the sliced inverse regression in order to generate coefficients that are easily interpreted using economic theory does not affect the results. Based on the SIR factors, millers were able to extract an additional $0.24/cwt. of flour by increasing their marketing margins in years farmers received program payments. Based on the CIR factors, the increase in the marketing margin was $0.23/cwt. In both cases the increase was approximately 10 percent of the estimated marketing margin in years farmers received program payments.

Notes:

Print version record

January 2011.