Econometric Analysis of Grading Standards: The Ordered Fractional Approach

Abstract

AbstractWe present a method for estimating the quality of production when quality is measured by discrete grades and is thus both ordinal and fractional. Monte Carlo experiments indicate that our method estimates average partial effects of quality determinants more accurately than linear estimators, and provides estimates with low bias even with weak instruments. An application of the model to wheat production in Japan demonstrates the importance of disease control in determining wheat grade. Weather variable coefficients suggest that climate change could actually improve wheat quality in Japan, thereby allowing farmers to reduce fungicide use and other inputs, as well as switch varieties.