Modeling Processor Market Power and the Incidence of Agricultural Policy: A Non-parametric Approach
AbstractThis 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.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16706.
Date of creation: Jan 2011
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Other versions of this item:
- Rachael E. Goodhue & Carlo Russo, 2011. "Modeling Processor Market Power and the Incidence of Agricultural Policy: A Nonparametric Approach," NBER Chapters, in: The Intended and Unintended Effects of U.S. Agricultural and Biotechnology Policies, pages 51-81 National Bureau of Economic Research, Inc.
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy
This paper has been announced in the following NEP Reports:
- NEP-AGR-2011-01-30 (Agricultural Economics)
- NEP-ALL-2011-01-30 (All new papers)
- NEP-COM-2011-01-30 (Industrial Competition)
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- Ashenfelter, Orley & Sullivan, Daniel, 1987. "Nonparametric Tests of Market Structure: An Application to the Cigarette Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 483-98, June.
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