Texasa&Muniversity

TexasA&MUniversity

Department of Agricultural Economics

Oral Capps, Jr.Spring 2008

COURSE TITLE: AGEC 635 Consumer Demand Analysis for Food and Agricultural Products

COURSE DESCRIPTION:

This course constitutes analytical and empirical treatments of consumer behavior. This course deals with the use of neoclassical theory and various modern adaptations to aid in consumer demand analysis. Additionally, this course involves the specification, estimation, interpretation and evaluation of models of consumer behavior with emphasis on food and agricultural commodities.

COURSE OBJECTIVES:

The objectives are simply to introduce students to economic issues and approaches to consumer demand analysis, to enhance capabilities for critical appraisal of problems, models and research techniques, and to provide experience in formulating relevant and meaningful research projects. The ultimate aim is to provide the understanding of economic factors that influence consumer behavior. The development of the student's ability to conduct economic analysis and to gain familiarity with fundamental economic concepts are of paramount importance.

Upon completing this course, the student should be able to:

(1)Decide the appropriate theoretical framework for analyzing a problem of interest in the area of demand and the advantages and disadvantages of that framework.

(2)Decide the appropriate mathematical and statistical tools required to implement the theoretical framework and the advantages and disadvantages of those tools.

(3)Read and prepare reviews of journal articles associated with consumer demand analysis.

COURSE ORGANIZATION:

Lectures, discussion, and reviews of journal articles. This course follows the seminar format with emphasis on theory as well as on application.

GRADING:

Grades will be based on homework, reviews of journal articles, a paper, and a final exam. The point distribution will be as follows:

Homework 25%

Reviews of journal articles (4) 25%

Paper 25%

Final Exam 25%

100%

HOMEWORK:

The homework will be either theoretical, conceptual, empirical, or a combination. Each person is expected to hand in a homework, though I encourage interaction with fellow students. No homework will be accepted after I start lecturing the day the homework is due, unless otherwise stated. These homework problem sets will give the student the needed experience and familiarity with the concepts and theory discussed in the classroom.

SOFTWARE:

Because some of the homework questions will be empirical, each student should have access to some econometric or statistical software package. I do not care what software package you use, but I am most familiar with EVIEWS, SAS and SHAZAM, and to a lesser extent TSP. I will therefore only be able to provide programming help in these programs.

REVIEW OF JOURNAL ARTICLES:

You will be responsible for four reviews of journal articles related to consumer demand analysis. The reviews will come from various sections of the course. Consult the handout for details.

PAPER:

The paper should address an economic question of interest pertaining to consumer demand analysis using the appropriate theory and quantitative technique. The paper can be done by, at the most, two people. The paper can be on any topic you want, but the purpose is to develop a manuscript which may be sent to a journal at the end of the term. Although not a requirement, I will assist students who want to pursue this possibility after the term. An outline of the paper will be required by Friday, March 21 and should address the questions listed below regarding the paper. I strongly suggest you start thinking about your paper immediately because even after you have decided on a topic, 95% of the work is still left to be done. The paper cannot exceed 20 pages, including tables, figures, and references. If you do not have a topic in mind for the paper, I will distribute a list of topics from which you may choose.

Questions to be considered in the outline to be addressed in the paper:

What is the problem?
Why is it important?
How does the problem you have identified relate to the rest of the literature?
Who will benefit from the analysis, other than you?
What is the underlying theoretical model?
What are the required data?
What is the proposed empirical model (i.e. functional form, single equation, system)?
What are the testable hypotheses?
What empirical implementation problems do you anticipate?
How do you plan to address the foreseen empirical problems?
What are the implications of your results?
What are the limitations of your analysis?

Consult the handout for details.

CLASS PREPARATION:

It is readily apparent that the possible amount of reading material is voluminous. Several of the readings are given only for additional reference, should you become more interested in the topic. In each section of the course I will assign a set of core readings that I consider to be the most important in the area being discussed.

TEXTBOOK:

Deaton, A. and J. Muellbauer, Economics and Consumer Behavior, New York: CambridgeUniversity Press, 1980.

REFERENCES:

1.Bewley, R. Allocation Models: Specification, Estimation, and Applications, Cambridge, Mass.: Ballinger Publishing Co., 1986.

2.Capps, Jr., O. and B. Senauer. Food Demand Analysis: Implications for Future Consumption, Virginia Polytechnic Institute and StateUniversity, August 1986.

3.Johnson, S.R. , Z.A. Hassan, and R.D. Green. Demand Systems Estimations: Methods and Applications, The IowaStateUniversity Press, 1984.

4.Phlips, Louis. Applied Consumption Analysis, Revised and Enlarged Edition, North-Holland Publishing Company, 1983.

5.Pollak, Robert A. and Terence J. Wales. Demand Specification and Estimation, New York: OxfordUniversity Press, 1992.

6.Rauniker, R. and C.L. Huang. Food Demand Analysis: Problems, Issues, and Empirical Evidence, IowaStateUniversity Press, 1987.

7.Theil, H. and K.W. Clements. Applied Demand Analysis: Results from SystemWide Approaches, Ballinger Publishing Company, 1987.

8.Silberberg, E. The Structure of Economics: A Mathematical Analysis, Second Edition, New York. McGraw Hill, 1990.

9.Varian, H.R. Microeconomic Analysis, Second Edition, W.W. Norton & Company, Inc., 1984.

INSTRUCTOR:

Oral Capps, Jr.

330B BlockerBuilding

Office Phone: 8458491

Home Phone: 6930320

E-mail:

COURSE OUTLINE:

I.Introduction and Overview

II.Concepts of Neoclassical Theory

A.Direct and Indirect Utility Functions

B.Demand Functions

1.Classical Restrictions (AddingUp, Homogeneity, Slutsky Symmetry)

2.Modern Restrictions (Additivity, Separability, Homotheticity)

C.Duality

1.Cost Functions

2.Hicksian Demand Functions

3.Shephard's Lemma (Hotelling's Theorem)

4.Integrability Conditions

III.Empirical Applications

A.Data

1.Data Types (Time-Series Data and CrossSectional Data)

2.Data Density

3.Problems, Perils, Pitfalls of Data (e.g. Censored Response, Collinearity, and Influential Data Points)

B.Price and Quality Issues from Cross-Sectional Data

C.Marketing Margins: Linkage from Retail to Farm Sectors

D.Asymmetry

E.Aggregation Over Commodities

1.Hicks-Leontief Composite Commodity Theorem

2.Lewbel’s Generalized Composite Commodity Theorem

F.Aggregation Over Consumers

IV.Static Demand Systems

A.Quantity Dependent Demand Systems

1.The Linear Expenditure System & Generalizations

2.The Rotterdam Model

3.Flexible Functional Forms

a.The Almost Ideal Demand System and Various Adaptations

b.The Translog Demand System

4.The Barten Model

B.Inverse (Price Dependent) Demand Systems

C.Mixed Demand Systems

D.The Rank of Demand Systems

E.Endogeneity Issues in Demand Systems

V.Dynamic Elements of Consumer Demand

A.Habit Formation and Stock Adjustment

B.Distributed Lag Models

C.Dynamic Demand Systems

VI.Extensions of Neoclassical Theory

A.Household Production Model

B.The Consumer Goods Characteristics Model

C.Hedonic Price Functions

VII.The Role of Information in Consumer Behavior

A.Advertising and Promotion

B.Health and Nutrition

C.Food Safety

VIII.Equivalence Scales

A.Engel's Approach

B.Commodity Specific Generalizations of Engel's Model

1.PraisHouthakker Model

2.Barten Model

3.BuseSalathe Model

4.TedfordCappsHavlicek Model

IX.Structural Change in Demand Relationships

A.Econometric/Statistical Approach (Recursive Residuals, CUSUM, CUSUMSQ)

B.Nonparametric Approach (WARP)

Cheating:Cheating is not tolerated!If you are caught in the act, you will automatically receive a zero on the work in question. Yours truly then will proceed in completing the Honor Code violation Report form and report you, through the Department of Agricultural Economics Undergraduate Office, to the Honor Council.

For many years Aggies have followed a Code of Honor, which is stated in this very simple statement:

An Aggie does not lie, cheat or steal

or tolerate those who do.

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