Economics Research Institute Study Paper
Utah State University Department of Economics
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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.