Modeling Processor Market Power and the Incidence of Agricultural Policy: A Non-parametric Approach

Rachael Goodhue and Carlo Russo

No 16706, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: C14 Q18 (search for similar items in EconPapers)
Date: 2011-01
New Economics Papers: this item is included in nep-agr and nep-com
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Related works:
Chapter: Modeling Processor Market Power and the Incidence of Agricultural Policy: A Nonparametric Approach (2011)
Working Paper: Modeling Processor Market Power and the Incidence of Agricultural Policy: A Non-parametric Approach (2011)
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