Estimating Cross Elasticities of Demand for Beef

Abstract

This paper examines the extent to which observed changes in per capita beef consumption can be accounted for by changes in relative prices and per capita real income. Particular attention was given to specifying the functional form by focusing on the nature of demand shifts over time. These considerations led to selection of the Fourier flexible form with a Fourier series expansion in relative meat prices. The results support the hypothesis that recent shifts in demand for beef can be attributed to changes in relative prices of competing meats, especially poultry. Considerable interest has been expressed in the cause of the decline in U.S. beef consumption in recent years. Two recent studies [Chavas; Moschini and Meilke] indicate different reasons for the shift in demand. Chavas attributes changed elasticities since 1970 to increased nutritional consciousness of consumers, while Moschini and Meilke attribute the recent decline in beef consumption to changes in relative prices and real income. Both studies, however, potentially suffer from specification bias. Chavas utilizes a constant elasticity functional form in his base model, although there is no compelling reason to expect elasticities to remain constant over time. Moschini and Meilke attempt to overcome functional form bias by employing a Box-Cox transformation; however, they do not include a separate price variable for poultry in their demand spec