Measuring the welfare impact of asymmetric price transmission on United States food consumers
Abstract
The first objective of the dissertation is to test for price asymmetry in several important agricultural product markets: beef, pork, poultry, eggs, potatoes, tomatoes and lemons. Studies by other economists suggest that evidence on the presence of asymmetric price adjustment is mixed. This dissertation uses an error correction model to test the symmetry of price transmission using monthly data. The test results suggest that strong price asymmetry exists in the markets for beef, pork, broilers, eggs, turkey, potatoes, tomatoes and lemons (South, West, and North Central). Overall, the statistically significant evidence of asymmetric price transmission was found in either the farm-to-wholesale price relationship or the wholesale-to-retail price relationship for some commodities, and the test results were significant in both market levels for some products. The dissertation also estimates the potential loss of consumer welfare due to significant price transmission asymmetry. Much of the research on price asymmetry is limited to tests for the existence of this phenomenon, but little has been done to measure the potential magnitude of welfare losses caused by the asymmetry. This study makes use of established methods of welfare analysis (compensating variation) to quantify the magnitude of the loss. Further, simulation methods are used to evaluate the welfare difference between symmetric and asymmetric price adjustment in repeated samples. The simulation results show that the per-capita compensating variations for pork range from about zero to six cents per month during 2000 and the average annual cost per person is about $0.37. The per-capita compensating variations for beef range from about one to nine cents per month in 2000, and the compensating variation is about $0.72 per person annually. The simulated welfare results are similar for other years in the sample. Overall the welfare loss due to price asymmetry in the pork market is less than 1% of pork expenditures (about $10 per month, and $120 per year) for the average US consumer and is thus negligible. For the US beef market, the percentage loss per person is even smaller.
Degree
Ph.D.
Advisors
Miller, Purdue University.
Subject Area
Agricultural economics
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