Estimates Of Supply Elasticities Research Articles

Heteroskedastic supply and demand estimation: Analysis and testing

The Feenstra (1994) method is widely used in the international trade literature to estimate supply and demand elasticities. The method is mechanically an IV strategy, and we demonstrate that this has important implications for its application and reliability. The assumptions needed for it to yield unbiased estimates are stronger than previously understood, and in practice, estimates are subject to bias due to both weak instruments and violations of the exclusion restriction. We illustrate how these arise in context and show that standard tests identify estimates that are likely to be biased. In an application to U.S. import data, estimates of import demand and export supply elasticities are substantially lower among goods that pass standard tests relative to those that fail. We find evidence that this difference in elasticities reflects reduction of bias as well as some selection in the set of goods that tend to pass both tests.

Tariff pass‐through: The case of china's WTO accession

Recent studies on the China–US trade war surprisingly find complete tariff pass‐through into import prices for both China and the United States. This paper provides additional evidence of tariff pass‐through in China. Using firm‐level monthly trade transaction data, we estimate the tariff pass‐through for Chinese imports in the period of WTO accession during 2000–2006. Consistent with evidence during the trade war, tariff pass‐through is also complete for tariff reductions induced by the WTO accession. Structural estimates of export supply elasticity also imply complete tariff pass‐through. Additionally, we find the complete pass‐through result holds regardless of firm ownership types, product end‐use, or China's market share in world imports.

Determinants of Tuition Prices in Private Universities of Mexico: A Panel Data Analysis at the State Level 2005-2019

Objective: Estimate a supply and demand model of private college education services in Mexico for the 2005-2019 period, in order to identify the factors that influenced the dynamics of their equilibrium prices.Methodology: The methodology consists of estimating such models with two- and three-stage least squares using panel data at the state level.Results: The results suggest that while the contribution of demand variables to the inflation of such prices has been positive and fairly stable, that of supply variables, even though it has been more fluctuating, it has also been larger than the contribution of the former throughout the entireperiod.Limitations and implications: It bounds the discussion on the role associated with private universities own characteristics as well as market structure due to lack of disaggregated information at private institution level. Originality and value: This paper contributes to the literature on the subject in Mexico by providing the first estimates of supply and demand elasticities for private higher education. Conclusions: Based on these estimates, it was possible to identify the dynamics of the equilibrium prices of tuition fees at private universities in Mexico and their relationship with both supply and demand factors.

Understanding the estimation of oil demand and oil supply elasticities

This paper examines the advantages and drawbacks of alternative methods of estimating oil supply and oil demand elasticities and of incorporating this information into structural VAR models of the global oil market. I show that some of these methodologies suffer from drawbacks that call into question the estimates they generate. I also explain the rationale for the use of alternative elasticity definitions in the literature and discuss the trade-off between these definitions. Once these issues are recognized, seemingly conflicting conclusions in the recent literature can be reconciled. My analysis reaffirms the conclusion that the one-month oil supply elasticity is close to zero, which implies that oil demand shocks are the dominant driver of the real price of oil.

Using Labor Supply Elasticities to Learn about Income Inequality: The Role of Productivities versus Preferences

Using a general labor supply model in which individuals choose how much to work conditional on productivities and preferences for consumption relative to leisure, we show that the mapping from earnings and hours worked to productivities and preferences can be expressed entirely in terms of reduced-form labor supply elasticities. We investigate the roles that productivities and preferences play in driving income inequality in the United States. Benchmark labor supply elasticity estimates from the literature imply that productivities drive most income inequality. Preferences become increasingly important relative to benchmark, with larger income effects or larger differences between earnings and hours-worked elasticities. (JEL J22, J24, D31, J31, H24, H31)

Agricultural Labor Supply

The labor supply response to agricultural wages is critical to the viability of crop production in high-income countries, which hire a largely foreign farm work force, as well as in low-income countries, where domestic workers move off the farm as the agricultural transformation unfolds. Modeling agricultural labor supply is more challenging than modeling the supply of other agricultural inputs or of labor to other sectors of the economy owing to unique features of agricultural production and farm labor markets. Data and econometric challenges abound, and estimates of agricultural labor supply elasticities are sparse. This review explains the importance and challenges of modeling farm labor supply and describes researchers’ efforts to address these challenges. It summarizes estimates of agricultural labor supply elasticities over the last 80 years, provides insights into variation in these estimates, identifies priority areas for future research, and reviews the most influential empirical work related to this important topic.

Distant Shocks, Migration, and Housing Supply in India

It is hard to estimate housing supply elasticities. India is a particularly useful country to study housing supply because it is large and has a variety of housing typologies. We estimate the supply elasticity of non-durable, durable, and vacant residential housing units in urban India. We use two migration-inducing exogenous events --- negative rainfall shocks and a highway upgrade program --- occurring in a distant state as demand shifters for local urban housing markets. We apply the Rosen-Roback spatial equilibrium framework to show that both the negative rainfall shocks and the highway upgrade program in a distant state increase inter-state migration. This increase leads to higher population and household growth, and therefore, higher demand for housing in local urban markets. Our findings are three-fold. First, we estimate the long-term supply elasticity of durable housing in urban India to be 1.64. This estimate is substantially lower than the long-run housing supply elasticity estimates of 6-13 for metropolitan areas in the United States seen in the literature. Second, we find that the supply elasticity of non-durable housing is -0.55. Negative supply elasticity of non-durable housing is consistent with the existence of urban gentrification through the demolition and upgrading of slums. And finally, we estimate the elasticity of vacant residential housing unit supply to be 2.63. We posit that a relatively higher vacant housing unit elasticity indicates speculative building by developers.

Understanding the Estimation of Oil Demand and Oil Supply Elasticities

This paper examines the advantages and drawbacks of alternative methods of estimating oil supply and oil demand elasticities and of incorporating this information into structural VAR models. I not only summarize the state of the literature, but also draw attention to a number of econometric problems that have been overlooked in this literature. Once these problems are recognized, seemingly conflicting conclusions in the recent literature can be resolved. My analysis reaffirms the conclusion that the one-month oil supply elasticity is close to zero, which implies that oil demand shocks are the dominant driver of the real price of oil. The focus of this paper is not only on correcting some misunderstandings in the recent literature, but on the substantive and methodological insights generated by this exchange, which are of broader interest to applied researchers.

Estimation of Supply and Demand Elasticities for Major Crops Produced in Pakistan

Thisarticlestudiesthe supply and demand of major Pakistani crops. We estimatesupply elasticities usinga Nerlovian partialadjustment processanddemand elasticities usingthe Deaton and MuellbauerAlmost Ideal Demand Systems (AIDS). We usesecondary data from various Household IntegratedEconomicSurveysand Agricultural Statistics of Pakistan. Our estimated supplyelasticities with respect to price liebetween 0.1 and 0.5 for all crops. Pulses tend to have higher elasticities than traditional crops such as wheat and rice. Demand elasticities with respect to price tend to beinelastic, with the exception of poultry andfruit which appearto be luxury items. Pulses are income inelastic, implying that consumption may not rise significantly asper capita incomesand thatthe introduction of yield enhancing varietieswill lead to lower prices.

Understanding the Estimation of Oil Demand and Oil Supply Elasticities

This paper examines the advantages and drawbacks of alternative methods of estimating oil supply and oil demand elasticities and of incorporating this information into structural VAR models. I not only summarize the state of the literature, but also draw attention to a number of econometric problems that have been overlooked in this literature. Once these problems are recognized, seemingly conflicting conclusions in the recent literature can be resolved. My analysis reaffirms the conclusion that the one-month oil supply elasticity is close to zero, which implies that oil demand shocks are the dominant driver of the real price of oil. The focus of this paper is not only on correcting some misunderstandings in the recent literature, but on the substantive and methodological insights generated by this exchange, which are of broader interest to applied researchers.

Reservation Wages and Workers’ Valuation of Job Flexibility: Evidence from a Natural Field Experiment

Recent changes in labor arrangements have increased interest in estimating and understanding the value of job flexibility. We leverage a large natural field experiment at Uber to create exogenous variation in expected market wages across individuals and over time. Combining this experiment with high frequency panel data on wages and individual work decisions, we document how labor supply responds to exogenous changes in expected market wages in a setting with virtually no restrictions on drive labor allocation. We find that there is i) systematic heterogeneity in labor supply responses both across drivers and within a driver over time, ii) significant fixed costs of beginning a shift, and iii) high rider demand when it is costly for drivers to work. These three findings motivate a model of labor supply with heterogeneous preferences over work schedules, adjustment costs, and statistical dependence between market wages and the costs of driving. We recover the labor supply elasticities and reservation wages of this dynamic labor supply model via a combination of experimental estimates and other data moments. We then perform counterfactual analyses that allow us to examine how preference heterogeneity and adjustment costs influence the responses of workers' to wage incentives as well as infer drivers' willingness to pay for the ability to customize and adjust their work schedule. We also show that a static approach to the driver's dynamic problem delivers materially different estimates of workers' labor supply elasticities and their value of job flexibility.

Understanding the Estimation of Oil Demand and Oil Supply Elasticities

This paper examines the advantages and drawbacks of alternative methods of estimating oil supply and oil demand elasticities and of incorporating this information into structural VAR models. I not only summarize the state of the literature, but also draw attention to a number of econometric problems that have been overlooked in this literature. Once these problems are recognized, seemingly conflicting conclusions in the recent literature can be resolved. My analysis reaffirms the conclusion that the one-month oil supply elasticity is close to zero, which implies that oil demand shocks are the dominant driver of the real price of oil. The focus of this paper is not only on correcting some misunderstandings in the recent literature, but on the substantive and methodological insights generated by this exchange, which are of broader interest to applied researchers.

Analyzing Regional Agricultural Production Responses using a Positive Mathematical Programming Method

This study constructs regional crop production models of 8 cities in Korea using the PMP Leontief-quadratic and the generalized-CES models suggested by Mérel and Bucaram (2010) and Mérel et al. (2011). A generalized maximum entropy estimation method was used to derive the set of supply elasticity estimates allowing a complete calibration of the models. We demonstrate that those two PMP models fit the Korean regional data quite well. The impacts of two policy changes, raising the rice producer price under the rice direct payment system and raising the minimum wage for hired rural labor were simulated. Our simulation results show that the policy impacts are varying over region and crop. Moreover, it is shown that the choice of the functional specification substantially affects the direction and the magnitudes of the policy impacts. More specifically, production responses are more flexible in the CES specification rather than in the Loentief specification, and the former specification suggests that a substantial increase in rural minimum wage may result in a decline in capital and labor employment in rural areas while the latter specification suggests that the overall resource use in rural areas will not be affected by the policy.

Positive mathematical programming and risk analysis.

In 1956, Freund introduced the analysis of agricultural price risk in a mathematical programming framework. His discussion admitted only constant absolute risk aversion. This paper generalizes the treatment of risk preference in a mathematical programming approach along the lines suggested by Meyer (1987) who demonstrated the equivalence of expected utility of wealth and a function of mean and standard deviation of wealth for a wide class of probability distributions that differ only by location and scale. This paper extends the definition of calibration under Positive Mathematical Programming (PMP) by considering limiting input prices along with the traditional decision variables. Furthermore, it shows how to formulate an analytical specification for the estimation of the risk preference parameters and calibrates the model to the base data within small deviations. The PMP approach under generalized risk allows also the estimation of output supply elasticities and the response analysis of decoupled farm subsidies that recently has interested policy makers. The approach is applied to a sample of farms that do not produce all the sample commodities.

Monopsony in Labor Markets: A Meta-Analysis

When jobs offered by different employers are not perfect substitutes in the minds of workers, employers gain wage-setting power; the extent of this power can be captured by the elasticity of labor supply that each employer faces. Estimates of this parameter reported by the literature vary broadly. We collect 801 estimates from published studies, record 20 aspects of each study’s design and perform Bayesian Model Averaging to show that this observed variation is systematic and can be attributed to four groups of factors. First, estimates depend on methodologies used by the researchers: different specifications produce systematically different results that are also affected by whether the study employs an identification strategy; the choice between linear and non-linear estimation techniques also matters. Second, estimates vary with the underlying data: labor markets seem to be more competitive in Europe, and less competitive in developing countries - compared to the US, Canada and Australia. The market for medical workers appears to be more monopsonistic compared to others. Third, there is evidence of publication bias in parts of the literature, which results in negative estimates of supply elasticities receiving lower probability of being reported, and a (slightly) exaggerated mean. Fourth, estimates seem to vary with study quality, with top journals publishing higher estimates and studies using larger data sets producing more evidence of competitive behavior.

LIML estimation of import demand and export supply elasticities

ABSTRACTI apply limited-information maximum likelihood (LIML) to estimate import demand and export supply elasticities for a range of eurozone countries. The results highlight inconsistencies in the parameters estimated by LIML relative to an estimator that is robust to heteroskedasticity. The nature of the structural equations reveals complications generated by the limiting behavior of the parameters that can be replicated in finite samples. The results of simulations underscore improvements in parameter estimates in a three-dimensional panel, suggesting that the problem of limiting behaviour can be overcome in larger dataset/panels.

Supply side constraints in the Israeli housing market—The impact of state owned land

House prices in Israel have risen since 2008 by as much as 98%. Much of this increase is attributed to low levels of housing supply and housing supply elasticities. In Israel land is frequently owned by the state. This results in heavy government involvement in the housing market through the control of land supply via land tenders. This paper estimates the impact of state owned land on the Israeli housing market focusing on these unusual conditions of land supply. A model for the creation of new housing units is proposed. This incorporates land tenders, enabling the estimation of housing supply dynamics with an accurate measure of public land supply. The model is tested using regional panel data which facilitates the dynamic estimation of national and local supply elasticities and regional spillovers. The paper uses novel data sources resulting in a panel of 45 spatial units over a span of 11 years (2002–2012). Due to the nonstationary nature of the data, spatial panel cointegration methods are used. The empirical results yield estimates of housing supply price elasticities and elasticities with respect to land supply. Results show that housing supply is positively impacted by governmental decisions but the impact is low. Supply elasticity with regard to government land tenders stands at around 0.05 over the short run and 0.08 over the long run. Government policy of offering land in low demand areas and fixing minimum-price tendering does not seem to affect housing supply. Policy implications point to the need for more sensitive management of the delicate balance between public and private source of land in order to mitigate the excesses of demand shocks.

Housing supply elasticity in local government areas of Sydney

ABSTRACTWe report supply elasticity estimates of residential property (houses and apartments) for local government areas (LGAs) in metropolitan Sydney. Using annual data for 1991–2012, the average supply elasticity estimate across all LGAs is 0.2 for houses and 0.8 for apartments. The supply of houses is inelastic in all 43 LGAs; in contrast, apartment supply is elastic – greater than unity – in about one-third of LGAs. We develop theoretical and empirical models to explain the cross-section variation in supply elasticity across LGAs. For houses, supply elasticity is negatively related to an LGA’s population density, the time taken by a local council to process a development application and to different measures of the amount of land in an LGA that is unavailable for new housing development. In contrast to houses, variation in supply elasticity for apartments across LGAs is unrelated to any of the available regressors.

Positive Mathematical Programming with Generalized Risk: A Revision

In 1956, Freund introduced the analysis of price risk in a mathematical programming framework. This paper generalizes the treatment of price risk preferences in a mathematical programming framework along the lines suggested by Meyer (1987) who demonstrated the equivalence of expected utility and a wide class of probability distributions that differ only by location and scale. This paper shows how to formulate a Positive Mathematical Programming (PMP) specification that allows the estimation of the risk preference parameters and calibrates the model to the base data within admissible small deviations. The PMP approach under generalized risk allows also the estimation of output supply elasticities and the response analysis of decoupled farm subsidies that, recently, has interested policy makers. The approach is applied to a sample of large farms. Not all farms produce all commodities.

Estimating Labor Supply Elasticities with Joint Borrowing Constraints of Couples

Conventional estimates of Frisch labor supply elasticities are biased in the presence of borrowing constraints. We develop an incomplete-markets model with two-earner households and derive a new estimation approach for the Frisch elasticity that yields unbiased estimates even in samples that include borrowing-constrained households. Our approach exploits that the strength of the estimation bias depends on individuals’ relative contribution to household earnings. It takes the form of a simple interaction term model with minimum data requirements. Using Panel Study of Income Dynamics data, we estimate Frisch elasticities of about 0.7 for men and rather homogeneous Frisch elasticities across the population.