Transcript An Inverse Almost Ideal Demand System for Oysters in the

Demand Analysis for Oysters
By
Cheikhna Dedah, Walter Keithly, Hamady
Diop, and Richard Kazmierczak
Louisiana State University
Background

Consumption of raw oysters contaminated with Vibrio
vulnificus bacteria can lead to serious illness and even death
among individuals with weakened immune systems.

California, in response to health concerns, initiated a program
on March 1991 which required mandatory labels on Gulf
products.

The average annual deflated dockside price of Gulf oysters has
fallen by approximately 40% since the introduction of the
warning labels in 1991.
Warning Labels
Newspapers Headlines
Annual Deflated Dockside Oyster Prices by
Region and Import Price
(1980-84 base period)
3.50
3.00
Price Per Pound
2.50
2.00
1.50
1.00
0.50
0.00
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Year
GUPR
CHPR
PAPR
IMPr
1998
1999
2000
2001
2002
2003
Annual U.S. Oyster Harvests by Region and
Annual Imports Oyster
30
25
Million Pounds
20
15
10
5
0
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
Year
GULBS
CHLBS
PALBS
IMLBS
1997
1998
1999
2000
2001
2002
2003
Objectives

Investigate the impacts of the mandatory warning labels and
the associated media attention in a complete demand
framework.

Examine the cross-quantity substitution effects
Material and Methods
The Inverse Almost Ideal Demand System (IAIDS) Model:
3
wit   i    ij * ln q jt   i * ln Q    is * ts  i *Vib  i * Trend   it
j
s 1
i, j= Gu, Ch, Pa, Im
wit is the expenditure share for oysters supplied from region i or
imports at time t.
qj is quantity of oyster per 1,000 people supplied from region j (or
Imports) at time t.
Q is the Laspeyres quantity index.
θts is seasonal dummy variable .
Vib is a Vibrio dummy variable.
Trend is time trend variable.
Methods

The IAIDS model for Gulf, Chesapeake, Pacific, and imported
oysters is estimated based on quarterly time series data
covering the period 1985(1)-2003(4).

Homogeneity and symmetry restrictions are imposed on the
estimated model.
RESULTS AND DISCUSSION
Estimated Parameters from the IAIDS Model
for Oysters
Region
γGu
αi
γPa
γCh
γIm
βi
φi
λi
ADJ.
R-square
0.64
1.74
**
0.75
1.78
Chesapeake 0.289*** -0.007 0.026*** -0.017** -0.002 -0.041 -0.087*** 0.000
0.76
1.83
0.194*** -0.049*** -0.002 -0.052*** 0.103*** -0.009 0.085*** -0.001***
0.91
1.68
Gulf
Pacific
Import
0.343*** 0.179*** -0.007 -0.123*** -0.049*** -0.122*** -0.089*** 0.001
0.174
***
-0.123
***
**
-0.017 0.191
***
Note: seasonal shifts in the intercept are not reported in this table
-0.052
***
0.172
***
0.090
***
0.001
DW
Impact of Mandatory Labels

The mandatory labels and related media attention was
estimated to:

Decrease the budget shares of the Gulf and Chesapeake
products by 8.7-8.9%

Increase the budget shares of the Pacific and imported
products by 8.5-9%
Impact of Mandatory Labels

An alternative model functional form which allows for a
gradual decline in the effect of warning labels was also
considered.

The Vibrio dummy variable was insignificant across all share
equations when its starting period moved back or forth two or
three years.

The parameters estimates were very stable after deleting the
last five years of data from the analysis.
Uncompensated Price Flexibilities
GUPR
GUQ
CHQ
PAQ
IMQ
Scale
-0.762*** -0.037*** -0.316*** -0.131*** -1.25***
-1.44
***
-0.003 -0.147** -0.104**
-0.38
***
-0.023 -0.414*** -0.217**
-1.07***
CHPR
-0.298
-0.76
PAPR
-0.132
IMPR
-0.417***
***
-0.305
**
-0.081
Price Flexibilities

All own price flexibilities are negative as theoretically
expected.

All cross price flexibilities were found to be negative which
classifies all products as gross substitutes

The Gulf product was found to exhibit a relatively strong
cross-quantity substitution effect with the imported and
Chesapeake products.
Price Flexibilities

The Chesapeake product has very weak cross-quantity
substitution effect with oysters from other regions.

The Pacific product was found to have a strong cross-quantity
substitution effect with the Gulf, Chesapeake, and imported
oysters.
Conclusions

The model results suggest a decline in the Gulf and
Chesapeake shares by about 9% and a corresponding increase
in the Pacific and import shares.

The Gulf, Chesapeake, Pacific, and imported oysters are gross
substitutes.

The estimated cross price flexibilities suggest that the Gulf and
Pacific products have strong quantity-substitution effects on
other products.