NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Rachael E. Goodhue, Carlo Russo

NBER Working Paper No. 16706
Issued in January 2011
NBER Program(s):   EEE   IO

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.

download in pdf format
   (414 K)

email paper

This paper is available as PDF (414 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16706

Users who downloaded this paper also downloaded these:
Goodhue and Russo Modeling Processor Market Power and the Incidence of Agricultural Policy: A Nonparametric Approach
Thursby Strategic Models, Market Structure, and State Trading: An Application to Agriculture
Goodwin, Mishra, and Ortalo-Magné w16693 The Buck Stops Where? The Distribution of Agricultural Subsidies
Blonigen, Liebman, and Wilson w13671 Trade Policy and Market Power: The Case of the US Steel Industry
Petrin, White, and Reiter w16700 The Impact of Plant-level Resource Reallocations and Technical Progress on U.S. Macroeconomic Growth
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us