Measuring the Effects of Technology Change in Multiple Markets : Application to the Greek Cotton Yarn Industry

Complications arise in the estimation of welfare changes in vertically and horizontally linked markets when technology affects production. Past research has dealt with these complications using single-equation models and dual approaches. We briefly discuss some of the limitations of these approaches, which include the single-equation approach’s poor statistical reliability, and the dual approach’s difficulties in incorporating expectations, dynamics, and expert advice. We propose a method that adapts Just, Hueth, and Schmit’z (2004) partial-equilibrium sequential integration approach to the case of prices changing because of technological change. Our approach addresses some of the limitations of the single-equation and dual approaches. Our methods can be applied to the estimation of welfare changes in either vertically or horizontally linked markets, when technology improvements and policy-induced multiple price changes affect the markets. This is a common occurrence in economic problems related to the estimation of welfare changes in agricultural and industrial commodities. We apply our method in an empirical study of the vertically linked market for Greek cotton.