Interpreting Price Elasticity of Demand Estimates with Caution: A Case Study of Hass Avocados
With Professor Kristin Kiesel and Richard J. Sexton
This research analyzes and explicates the context specificity of price elasticity of demand by estimates using Hass avocados as a case study. The study addresses how price responsiveness varies across geographic markets, consumer demographics, and retail outlets, as well as across time. Hass avocados, which are the dominant avocado variety sold at retail, are relatively homogeneous in terms of product quality. These features make Hass avocados an ideal case study for examining price elasticities across the supply chain without the confounding effects of significant product and brand variation. Through multi-layered analysis of Circana household panel data and retail scanner data, the study identifies heterogeneity in price elasticity estimates at different aggregation levels. The results underscore the need for precise application of elasticity estimates to avoid misleading policy outcomes and offer insights for effective policy design and marketing strategies.
This research analyzes and explicates the context specificity of price elasticity of demand by estimates using Hass avocados as a case study. The study addresses how price responsiveness varies across geographic markets, consumer demographics, and retail outlets, as well as across time. Hass avocados, which are the dominant avocado variety sold at retail, are relatively homogeneous in terms of product quality. These features make Hass avocados an ideal case study for examining price elasticities across the supply chain without the confounding effects of significant product and brand variation. Through multi-layered analysis of Circana household panel data and retail scanner data, the study identifies heterogeneity in price elasticity estimates at different aggregation levels. The results underscore the need for precise application of elasticity estimates to avoid misleading policy outcomes and offer insights for effective policy design and marketing strategies.
Investigating Organic Fraud in U.S. Grain and Oilseed Imports
With Professor Kristin Kiesel and Richard J. Sexton
The United States and many other countries seek to expand the production and consumption of organic products as a pathway to achieving their agricultural sustainability goals. However, organic fraud, mislabeling conventional products as organic, presents a significant threat to achieving these goals. It can result in the classic adverse selection problem, reducing price premiums for organic products and dissipating farmers’ incentives to convert land to organic production. This paper explicates concerns regarding organic fraud and presents an econometric test in the context of international shipments of organic commodities that can help identify instances of organic fraud. We apply the empirical framework to organic shipments of grains and oilseeds to the United States. Using data from multiple sources, we estimate econometric models to explain organic grain and oilseed shipments as a function of the conventional–organic price spread, the EU–US organic price spread, and control variables to test the hypothesis that the magnitude of the conventional–organic spread incentivizes mislabeling of conventional product as organic and, thus, creates organic fraud. Preliminary results reveal a positive correlation between shipments labeled as organic and the conventional–organic price spread, supporting the main hypothesis of the paper. We conclude that significant opportunities exist to commit organic fraud, especially in the context of international trade. Such fraud, as it becomes more widely known, can threaten efforts to expand production and consumption of genuine organic foods.
The United States and many other countries seek to expand the production and consumption of organic products as a pathway to achieving their agricultural sustainability goals. However, organic fraud, mislabeling conventional products as organic, presents a significant threat to achieving these goals. It can result in the classic adverse selection problem, reducing price premiums for organic products and dissipating farmers’ incentives to convert land to organic production. This paper explicates concerns regarding organic fraud and presents an econometric test in the context of international shipments of organic commodities that can help identify instances of organic fraud. We apply the empirical framework to organic shipments of grains and oilseeds to the United States. Using data from multiple sources, we estimate econometric models to explain organic grain and oilseed shipments as a function of the conventional–organic price spread, the EU–US organic price spread, and control variables to test the hypothesis that the magnitude of the conventional–organic spread incentivizes mislabeling of conventional product as organic and, thus, creates organic fraud. Preliminary results reveal a positive correlation between shipments labeled as organic and the conventional–organic price spread, supporting the main hypothesis of the paper. We conclude that significant opportunities exist to commit organic fraud, especially in the context of international trade. Such fraud, as it becomes more widely known, can threaten efforts to expand production and consumption of genuine organic foods.