Economics Research Institute Study Paper
Utah State University Department of Economics
This paper investigates the response of beef cattle producers to changes in the price of cattle. Previous research has suggested that there may be a negative short-run supply response to a permanent increase in the price of cattle. We build a dynamic, rational expectations model that predicts that the supply response is generally positive, even for permanent shocks in the short run, and nests the negative supply response as a special case for appropriately restricted demand shocks. Using annual U.S. time-series data (1930-1997) and a simultaneous-equations econometric approach, we find a positive short-run supply response in the cow market and mixed evidence in the heifer market.
Aadland, David; Bailey, DeeVon; and Feng, Shelly, "A Theoretical and Empirical Investigation of the Supply Response in the U.S. Beef-Cattle Industry" (2000). Economic Research Institute Study Papers. Paper 188.