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Substitutability for Farm Commodities: The Demand for U.S. Tobacco in Cigarette Manufacturing

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  • Daniel A. Sumner
  • Julian M. Alston

Abstract

A generalized leontief cost function and system of factor demand functions for the domestic cigarette industry is estimated. We strongly rejected fixed proportions. Both imported tobacco and other inputs are substitutes for U.S. tobacco. The estimated (output constant) price elasticities are combined with the output effect (calculated from cost shares and time-series estimates of the cigarette demand elasticity) and an export demand elasticity (from previous studies) to consider the effects of reducing the U.S. price support. Competition from foreign tobacco implies that a U.S. price decline would increase significantly the quantity of U.S. tobacco demanded.

Suggested Citation

  • Daniel A. Sumner & Julian M. Alston, 1987. "Substitutability for Farm Commodities: The Demand for U.S. Tobacco in Cigarette Manufacturing," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(2), pages 258-265.
    • Handle: RePEc:oup:ajagec:v:69:y:1987:i:2:p:258-265.
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    File URL: http://hdl.handle.net/10.2307/1242275
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    Cited by:

    1. Michael Rubens, 2023. "Market Structure, Oligopsony Power, and Productivity," American Economic Review, American Economic Association, vol. 113(9), pages 2382-2410, September.
    2. Beghin, John & Chang, Ruey-er, 1989. "Differentiated Products And Supply Controls In The Analysis Of Agricultural Trade Liberalization: The Case Of Tobacco," Department of Economics and Business - Archive 259448, North Carolina State University, Department of Economics.
    3. Benny Overton & John Beghin & William Foster, 2017. "Phytosanitary Regulation and Agricultural Flows: Tobacco Inputs and Cigarettes Outputs," World Scientific Book Chapters, in: John Christopher Beghin (ed.), Nontariff Measures and International Trade, chapter 19, pages 327-337, World Scientific Publishing Co. Pte. Ltd..
    4. Beghin, John C. & Blake Brown, A. & Hasyim Zaini, M., 1997. "Impact of domestic content requirement on the US tobacco and cigarette industries," Agricultural Economics, Blackwell, vol. 15(3), pages 201-212, January.
    5. Goodwin, Barry K. & Sumner, Daniel A. & Sparrow, D. Arthur, 1987. "Identification And Estimation Of Underlying Market Supply Function Parameters For A Commodity With Mandatory Output Controls," 1987 Annual Meeting, August 2-5, East Lansing, Michigan 270139, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    6. Overton, Benny E. & Beghin, John C. & Foster, William E., 1995. "Phytosanitary Regulation and Agricultural Trade Flows: Tobacco Inputs and Cigarettes Outputs," Staff General Research Papers Archive 1590, Iowa State University, Department of Economics.

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