Projects Funded for Jeffrey Perloff


Crop Failures from Temperature and Precipitation Shocks—Implications for U.S. Crop Insurance and Farmers


The Effect of Increased Choice on Consumer Consumption of Food


Specific Objectives of the Project

We planned to test competing economic and psychological hypotheses on whether greater choice increases or decreases sales and welfare. We wanted to examine how consumers’ ice cream consumption adjust in response to a major change in the choice of products at a large grocery store chain, with headquarters in California.

Summary of Results

Standard economic theory argues that consumer benefit from more choices, while some psychologists have argued that more choices overwhelm consumers, resulting in reduced consumption. We used a natural experiment to test these competing hypotheses. Once a year, a major grocery chain changes its selection of ice cream. Because the chain introduces these changes at varying times across its stores, we were able to compare purchases at stores where the change had occurred to others where the change had not yet happened. Our results provide some support for the standard economic hypothesis and no support for the alternative hypothesis.


Estimating the Joint Distribution of Crop Yield and Weather


Specific Objectives of the Project

A crucial question for farmers and agricultural economists is how weather affects yield and risk. Unfortunately, relatively little is known about the joint distribution of yield and weather. We propose estimating the joint distribution of corn yield, temperature, and precipitation (during the flowering season).

Summary of Results

We have collected the data and have worked on the econometric techniques to estimate the trivariate distribution of corn yield, temperature, and precipitation. These techniques have been used to demonstrate feasibility with artificial data. However, we have not yet estimated using actual data.


Grocery Brand Competition with Implications for Pass Through


Do changes in food commodity prices have asymmetric effects on retail grocery prices? For years, farmers, consumer advocates and others have argued that grocery store prices rise rapidly in response to increases in commodity prices, but do not fall equally rapidly when commodity prices drop. We examine pricing in both stores that have regular sales and those that use everyday low pricing and rarely have sa les. For both types of stores, we find very little evidence for asymmetric price adjustment. We believe that some earlier studies found asymmetric adjustments because they did not use narrowly defined products, control for all the main factor prices, and u se state-of-the-arts estimation procedures.


Commodity Price Pass Through


California farmers have been incensed over the years, complaining that when commodity prices rise, supermarket prices rise disproportionately, and when commodity prices fall, supermarket prices remain relatively constant or fall slowly. A large literature purports to find that grocery store prices adjust asymmetrically, with prices rising rapidly when input prices rise, but falling more slowly when input prices fall. However, these studies suffer from a variety of problems including aggregation bias (due to combining many goods into a single measure), statistical problems (failing to account for unit roots), using weak proxies for commodity prices, failing to note that some supermarkets that have frequent sales while others use an everyday-low-price approach. Our more careful studies fail to find evidence of asymmetric price adjustment. Moreover, we find little evidence of a tight-link between commodity prices and retail prices in general.


The Effects of Changes in the Number of Varieties on Consumer Behavior


Consumers choose from among the varieties of two brands and an outside good using order statistics. We analytically derive demand functions conditional on their valuations of the varieties being distributed independently uniform. Demands are functions of higher-order polynomials, where polynomial order is increasing in variety. Curvatures (derivatives) of the demands are themselves demands (over lower numbers of varieties). Based on this theory, we estimate a three-parameter empirical version of the model for the retail soft-drink market. These estimates are used to determine the effects cost shocks on optimal prices a nd varieties of Coke and Pepsi for a grocery store. We provide estimates on how much an increase in variety affects welfare and determine the optimal number of varieties. Because the demand curves have convex and concave sections around an inflection point, firms are more likely to respond and make large price adjustments to increases in cost than to comparable decreases in costs.


Brand Name and Private Label Price Setting by a Grocery Store


A grocery store that sells to brand-name loyal customers and to price-sensitive customers must decide whether to carry both name-brand and private-label products and how much to charge. Introducing a private label may either raise or lower the price that a store charges for a brand-name product. As the number of customers that are price sensitive increases, a store may be more likely to carry a private label, but the prices of both the private label and brand-name may rise. As the reservation price of price-sensitive consumers rises, the price differential between the brand name and private label first falls; but if the reservation price rises further, the store may stop carrying the private label. Given price-sensitive consumers, a store may charge a higher price for the brand name than that which would maximize profit if it sold to only brand-loyal customers.


The Effect of WIC on the Retail Price Markup of Infant Formula


Under the U.S. Special Nutrition Program for Women, Infants, and Children (WIC) program, three major infant formula manufacturers compete for the supply contracts.eTo explain the striking differential between contracted WIC price and non-WIC price, we propose a spillover model where winning the WIC contract gains non-WIC market share. We use store level scanner data and exploit WIC contract changes to test the model predictions and show how a WIC contract change affects the market shares of the winner and other firms. We also find winning the contract does not affect the actual (not estimated) retail price markup


The Effect of 9/11 on the Agricultural Labor Market


WIC Program's Effect on Infant Formula Prices and Sales


Price and Other Effects of Supermarket Mergers


Trade and the Size Distribution of Farms


The Effect of Grocery Store Consolidation


The Effect of Taxes on Fat Consumption


The Effect of Marketing Orders and other California Laws on the Welfare of Milk Consumers


Effect of Minimum Wages and Other Government Policies on Income Distribution and Welfare


Efficiency Wages and Agricultural Workers


Transitions Among Agricultural Work, Nonagricultural Work and Other Activities