Estimates Of Price Elasticities Research Articles

Estimation of time‐varying price elasticity in 1970–1997 Japanese raw milk supply by structural time‐series model

AbstractThe price elasticity of raw milk supply in Japan is estimated over time by a structural time‐series model in state space form, and the changes in elasticity are tested by the diagnosing test of de John and Penzer in 1998. The supply function is modeled with a local linear trend and a strictly exogenous autoregressive distributed lag price. The seasonality in the data is adjusted by a structural time‐series model. In the 1970–1997 period, there were major dairy policy changes in Japan: a production adjustment, related penalties, and two‐tier pricing. Hokkaido is the region that mainly provides the supply of raw milk for milk products, while Tofuken is the region that mainly produces drinking milk. The estimated price elasticity in Hokkaido became stable after imposition of the production adjustment. On the other hand, price elasticity in Tofuken became stable after the inflation of the mid‐1970s. Price elasticity is estimated to be more inelastic as well as more likely to converge in inelasticity in Hokkaido than in Tofuken. We discuss the relationship between changes in dairy policy and changes in price elasticity.

Elasticity of Demand for Barged Corn Shipments on the Upper Mississippi River-Illinois Waterway

Qualitative evidence is presented to contend that the predominant response of waterway grain shippers on the Upper Mississippi River-Illinois Waterway to increases in barge shipping costs is most likely to be modal shift. Even so, modal shift faces serious constraints, moderating its ability to substitute for barges as waterway shipping costs rise. In addition, empirically derived estimates of demand price elasticities for barge transport are offered on four reaches of the river system. The elasticities are moderately inelastic, ranging from -0.7 to -0.3.

Elasticity of Demand for Barged Corn Shipments on the Upper Mississippi River–Illinois Waterway

Qualitative evidence is presented to contend that the predominant response of waterway grain shippers on the Upper Mississippi River-Illinois Waterway to increases in barge shipping costs is most likely to be modal shift. Even so, modal shift faces serious constraints, moderating its ability to substitute for barges as waterway shipping costs rise. In addition, empirically derived estimates of demand price elasticities for barge transport are offered on four reaches of the river system. The elasticities are moderately inelastic, ranging from −0.7 to −0.3.

The European Market for ASEAN Agricultural Exports: Estimates of Income and Price Elasticities

This article provides new evidence on income and price elasticities of demand for agricultural exports from ASEAN countries. Econometric models are constructed for seven agricultural commodities ? cassava, cocoa, coconut oil, palm oil, pepper, rubber, and tea ? exported from ASEAN to the EU. A modelling approach based on the error correction mechanism is used in order to emphasize the importance of the dynamics of trade functions. The results indicate that there is a relatively weak demand response to income and price changes in the EU. However, the results also suggest that relative-price variations affect significantly the demand for ASEAN commodity exports, implying that the exporters market share is influenced by price competitiveness.

The effect of cigarette price increase on the cigarette consumption in Taiwan: evidence from the National Health Interview Surveys on cigarette consumption

BackgroundThis study uses cigarette price elasticity to evaluate the effect of a new excise tax increase on cigarette consumption and to investigate responses from various types of smokers.MethodsOur sample consisted of current smokers between 17 and 69 years old interviewed during an annual face-to-face survey conducted by Taiwan National Health Research Institutes between 2000 to 2003. We used Ordinary Least Squares (OLS) procedure to estimate double logarithmic function of cigarette demand and cigarette price elasticity.ResultsIn 2002, after Taiwan had enacted the new tax scheme, cigarette price elasticity in Taiwan was found to be -0.5274. The new tax scheme brought about an average annual 13.27 packs/person (10.5%) reduction in cigarette consumption. Using the cigarette price elasticity estimate from -0.309 in 2003, we calculated that if the Health and Welfare Tax were increased by another NT$ 3 per pack and cigarette producers shifted this increase to the consumers, cigarette consumption would be reduced by 2.47 packs/person (2.2%). The value of the estimated cigarette price elasticity is smaller than one, meaning that the tax will not only reduce cigarette consumption but it will also generate additional tax revenues. Male smokers who had no income or who smoked light cigarettes were found to be more responsive to changes in cigarette price.ConclusionsAn additional tax added to the cost of cigarettes would bring about a reduction in cigarette consumption and increased tax revenues. It would also help reduce incidents smoking-related illnesses. The additional tax revenues generated by the tax increase could be used to offset the current financial deficiency of Taiwan's National Health Insurance program and provide better public services.

Estimating Consumer Surplus and Elasticity of Demand of Tourist Visitation to a Region in North Queensland Using Contingent Valuation

The Daintree Rainforest is a prime attraction for Tropical North Queensland as a tourist destination. Visitation of the rainforest, specifically the Cape Tribulation section, has increased rapidly as impediments to self-drive access have been removed. This paper examines the potential for the local council to manage the volume of self-drive visitation to the Cape Tribulation region by price mechanisms. Access to the region is by river ferry only. The assessment is based on estimates of willingness to pay from a contingent valuation survey of self-drive tourists to the region, from which estimates of consumer surplus and price elasticity of demand are derived. It is concluded that increasing the price for ferry crossings could be an effective and efficient means of (a) reducing traffic volumes caused by self-drive visitors and thereby alleviating traffic-related social and environmental problems, and (b) significantly increasing the resource rent which the municipality can draw from tourism, with additional revenue from the ferry being available for the improved management of this prime tourist destination.

Family planning programs: getting the most for the money.

At a time when funding for family planning programs is shrinking it is important for donors to know how to get the most change in contraceptive prevalence per dollar spent. By some estimates roughly half of family planning program funds net of labor costs and capital outlays are used to subsidize contraceptive prices. Price subsidies may serve as an important source of income support for families but it is not clear they have been cost-effective in increasing contraceptive use. Although researchers have studied the effect of contraceptive prices on contraceptive demand (commonly measured in terms of price elasticity) virtually none have compared the cost-effectiveness of contraceptive price subsidies to alternative expenditures on quality promotion or distribution. Lacking the data that such research could provide donors and managers have designed programs around the little information that is available. In this case it has often meant using estimates of price elasticity to argue for the subsidization of contraceptive supplies. Harvey for instance used the results of a regression of social marketing condom sales against social marketing condom prices to advance the commonly cited “1% rule” of contraceptive pricing—one couple-year of contraceptive protection should cost less than 1% of per capita income or gross national product. (excerpt)

Quantile-regression estimates of cigarette demand elasticities for the United States

Using a simple model and state-level cross-section U.S. data from 1993 to 1999, quantile-regression estimates of price elasticity and income elasticity for cigarette demand are obtained. It is noted that price elasticity shows a sizable variation across the high and low quantity-quartiles. There is a similar variability in the income elasticity, but most of these estimates lack statistical significance. Besides providing an indication of the variation in the price (and income) elasticity for different consumption levels, the exercise suggests some interpretative caution in regard to estimates from constant-elasticity models.

U.S. Canned Tuna Supply and Demand

A 3SLS econometric model is used to estimate price elasticities of supply and demand for domestically produced and imported canned tuna in the U.S. market. In addition, a VAR model is developed to examine the relations between imports and domestically produced canned tuna. For domestically produced canned tuna, a 3SLS estimation of a structural econometric model yielded a coefficient for price elasticity of supply of 0.2 and of own-price demand of −0.3. Such price inelasticities are expected of a fishery exploited at or near its maximum yields (inelastic supply), and a consumer product widely viewed as almost a necessity in a well-stocked pantry (inelastic demand). In addition, the model yielded a cross-price elasticity of demand with respect to the price of imported canned tuna of 0.45. Additional results include an income elasticity U.S. demand for domestically packed tuna of 0.83; a cross-price elasticity with the price of bread (a complement) of −0.33, a cross-price elasticity for the price of ground meat (a substitute) of 0.30. With respect to imported canned tuna in the U.S. market, the corresponding elasticities estimated in the model are −1.3 (own-price demand), 3.5 (income elasticity), −1.2 (cross-price with the price of bread) and 2.5 (cross-price with the price of ground meat). For canned tuna company managers, the results provide useful information about the likely effects on sales that would come from their own price changes, from changes in the price of imported canned tuna, and from price changes in the markets for complementary and substitute products. They can also use our results in discussions with U.S. trade negotiators, who are frequently faced with disputes over tariffs, market access, and other trade issues.

Optimal Pricing in Urban Bus Companies in India

Optimal Pricing in Urban Bus Companies in India

Alternate Price Specifications for Estimating Residential Water Demand with Fixed Fees

<i>Using a new model formulation and data from a sample of Colorado utilities, we investigated the price specification controversy (marginal price versus average revenue) when estimating residential water demand. The improved statistical fit using average revenue as the price variable was shown to be an artifact of the unitary elastic identity created when monthly rate schedules contain a fixed fee. When the fixed fee was purged from the data, average price was not significant, but marginal price remained significant. In the preferred double-log marginal price model, estimated price elasticity was –0.3, and conservation programs had no significant effect on water use</i>. (JEL Q25)

Determinants of Charitable Donations to Large U.S. Higher Education, Hospital, and Scientific Research NPOs: New Evidence from Panel Data

We provide improved evidence on effects that fund-raising, government support, and program revenue of U.S. higher education, hospital, and scientific research nonprofit organizations (NPOs) have on donations to those NPOs and provide improved estimates of price elasticities of donations to, and donor demand for output of, those NPOs. Applying econometric tests, we find the best-specified model is two-way fixed effects, which controls for organization-specific and time-specific factors. Results suggest that U.S. higher education, hospital, and scientific research NPOs fund-raise to the point where the marginal fund-raising dollar brings in zero dollars of donations, donor demand for output of hospitals and scientific research NPOs is price inelastic and price elastic, respectively, and results are not sensitive to specification of price.

Taxation of the Global Arms Trade? An Overview of the Issues

SummaryA number of proposals for a tax on the international trade with weapons have been made during the last 25 years, most recently prior to the G‐8 summit in Lyon, France, in June 2003. Originally, the major objectives were both to reduce the level of trade in arms and raise money for purposes such as development and disarmament. Later proposals included the compensation of victims of the use of specific types of weapons. Various objections have been raised against the suggestions for an international arms trade tax. Major points include the difficulties of achieving sufficient levels of compliance, tax evasion through increases in domestic production and a stimulation of the illicit trade in arms. There are also fundamental objections against demeritorizing arms transfers only, and not also domestic production of arms. In order for an international arms trade tax to work, the level of transparency in the international arms trade would need to increase. A major part of the tax burden would be borne by buyers of arms, who are predominantly developing countries. However, these are currently also major beneficiaries of large‐scale subsidies on arms exports. An international arms trade tax will lead, using available estimates of price elasticities, to an increase in expenditures on arms import. Transfers from a fund fed by an arms trade tax should be spent in those countries which substantially reduce their spending on arms imports. In general, an arms trade tax makes more sense as a measure for disarmament than as a measure for development.

Modeling Residential Water Demand Using Household Data: A Cubic Approach

A cubic functional form of an econometric model for residential water demand estimation is used in order to accommodate different price elasticities for different levels of water demand. Precise estimates of these different price elasticities offer a useful tool to water authorities for urban water demand management through price-based policies. Panel estimation methods (fixed and random effects) are employed to estimate model parameters. The results show that a cubic form of the demand equation can provide appropriate estimates of price elasticities for different “consumption groups” of residential customers. In addition, the effect of public awareness and information on water conservation is also evaluated after controlling other parameters affecting demand for water. Thus, another implication of this study is that well-informed consumers, aware of issues of water conservation and of techniques for water efficient use, may be more inclined to reduce their water consumption.

Trade Performances, Product Quality Perceptions, and the Estimation of Trade Price Elasticities

AbstractTraditional trade models ignoring the dimension of product quality generally lead to excessively low trade price elasticities. This paper estimates import market share equations including a quality image proxy derived from survey data. The estimation results, based on panel data for the four main EU member states, confirm the part played by product quality perceptions in the estimation of trade price elasticities, at least for highly differentiated products. Introducing the quality image proxy into the models leads to a significant increase in the price elasticities, which thus become superior to unity, in conformity with theoretical elasticities of substitution.

Estimation of price elasticity and taxation in the U.S. cigarette industry

Based on our empirical estimates, the data did not suggest that federal tax has a larger impact on the retail price of cigarettes than does state tax since the state tax is susceptible to bootlegging bias among adjacent states. The price elasticities of demand for cigarettes are –0.675 and –0.308 in the long term and in the short term, respectively. With current price elasticity stabilizing between –0.3 and –0.5 —a value below profit-maximizing value — there is indeed considerable room for future cigarettes tax hikes to meet the shortfall in the budgets of both federal and state governments.

Is cigarette smoking in poorer nations highly sensitive to price?: Evidence from Russia and China

We examine cigarette demand in China and Russia using longitudinal micro-level household and community surveys. Previous developing-country price elasticity estimates of around −0.75 have been larger than United States estimates of about −0.4, but the former have relied primarily on aggregate data. In contrast, our micro-level price elasticity estimates in China and Russia range from 0 to −0.15. Thus, raising prices in poorer countries may not reduce smoking to the degree previously suggested.

Elasticities of Demand and Willingness to Pay for Environmental Services in Sweden

Are environmental services luxuriesor necessities? Are low-income groupsrelatively more willing to pay forenvironmental improvements than high-incomegroups? The discussion on the shape of theenvironmental Kuznets curve and environmentaljustice call for analyses that approach thesequestions. Following a survey-based approachfor modelling the demand for public goods, thispaper provides estimates of income and priceelasticities of demand for reduced marineeutrophication effects in the case of theBaltic Sea, using data from five Swedishcontingent valuation studies. Point estimatesindicate that reduced marine eutrophicationeffects can be classified as a necessity and anordinary and price elastic service. Confidenceintervals show however that the classificationas a necessity is not statisticallysignificant. Income elasticities of willingnessto pay, not to be confused with incomeelasticities of demand, are estimated for abroad range of environmental services inSweden. A basic finding is that income tends toinfluence willingness to pay positively andsignificantly. The elasticity estimates are inmost cases greater than zero, but less thanunity, indicating that the benefits ofenvironmental improvements tend to beregressively distributed. In a cost-benefitanalysis of a project suggesting environmentalimprovements, distributional concerns thereforecall for an introduction of weights or at leasta sensitivity analysis of how weighting wouldchange decisions about the project's socialprofitability.

Search and Product Differentiation at an Internet Shopbot

We estimate the magnitude of consumer search benefits and costs using data obtained from a major Internet shopbot. For the median consumer, the benefits to searching lower screens are $6.55 while the cost of an exhaustive search of the offers is a maximum of $6.45. We are also able to estimate price elasticities and find that they are relatively high compared to offline markets (-7 to -10 in our base model). Our results suggest that consumers face fairly high costs to search for information online, even in the nearly perfect market of the shopbot.

Pricing Behavior in Markets with State-Dependence in Demand

Marketing researchers have documented significant biases in estimated price elasticities from brand choice models that ignore state dependence effects. Yet empirical research on firm behavior has thus far ignored the effects of state dependence. In this paper we investigate the supply side consequences of ignoring state dependence using household-level data from the cereal category. Our key results are as follows: We find evidence of both positive (i.e. inertia) and negative (i.e. variety-seeking) state dependence in the cereal category. Ignoring state dependence in demand biases inferences about firm behavior. Specifically, we attribute the observed prices in the cereal category to tacit collusion between manufacturers, when in fact accounting for the effects of state dependence shows that competitive behavior is indeed non-cooperative. We find that firms are forward looking in that they incorporate the effect of their current prices on future profits. However, the relative bang for the buck, in terms of improvements in prediction and fit, is much greater from modeling state dependence in demand than from modeling inter-temporal firm behavior on the supply side.