Abstract
This article determines the potential effects of policies to address concerns about lower producer prices due to increased use of marketing agreements. Policies considered are banning alternative marketing agreements, compensating producers who sell on the cash market, and restricting the quantity of marketing agreements. We use an agent-based model in a common-value auction framework to analyze these policies. The common-value auction framework is used because it closely resembles how livestock are actually purchased. The agent-based model is used to find the common-value auction equilibrium. A ban on marketing agreements reduces social welfare and the other policy interventions have little effect on prices. Past theoretical studies predict marketing agreements will cause large reductions in prices paid to producers. Conversely, empirical studies show slight effects. This article offers an alternative theory that more closely matches livestock markets and our results reduce the gap between theoretical and empirical research. The common-value auction model predicts negative effects on producer prices close to those found in past empirical research.
Funding statement: The research was funded by United States Department of Agriculture Cooperative Agreement 58-3000-3-0045. Brorsen also receives financial support from the A.J. and Susan Jacques Chair and the Oklahoma Agricultural Experiment Station and USDA National Institute of Food and Agriculture, Hatch Project number OKL02939. Maples received support from a Sitlington Enriched Graduate Scholarship. Earlier versions of the paper were presented at an Economics Research Service workshop and an Agricultural and Applied Economics Association invited paper session.
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Articles in the same Issue
- Invited Article
- Alternative Policy Responses to Increased Use of Formula Pricing
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- Using Local Information to Improve Short-Run Corn Price Forecasts
Articles in the same Issue
- Invited Article
- Alternative Policy Responses to Increased Use of Formula Pricing
- Articles
- Farm Gate Prices for Non-Varietal Wine in Argentina: A Multilevel Comparison of the Prices Paid by Cooperatives and Investor-Oriented Firms
- Spatial Pricing in Uncontested Procurement Markets: Regulatory Implications
- Structure and Food Price Inflation
- Do Geographical Indications Really Increase Trade? A Conceptual Framework and Empirics
- Using Local Information to Improve Short-Run Corn Price Forecasts