Demand Analysis for Oysters

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Demand Analysis for Oysters

• By
• Cheikhna Dedah, Walter Keithly, Hamady Diop, and
  Richard Kazmierczak

Louisiana State University
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Background

• Consumption of raw oysters contaminated with
  Vibrio vulnificus bacteria can lead to serious
  illness and even death among individuals with
  weakened immune systems.
• California, in response to health concerns,
  initiated a program on March 1991 which required
  mandatory labels on Gulf products.
• The average annual deflated dockside price of
  Gulf oysters has fallen by approximately 40
  since the introduction of the warning labels in
  1991.

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Warning Labels
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Newspapers Headlines
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Annual Deflated Dockside Oyster Prices by Region
and Import Price (1980-84 base period)
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Annual U.S. Oyster Harvests by Region and Annual
Imports Oyster
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Objectives

• Investigate the impacts of the mandatory warning
  labels and the associated media attention in a
  complete demand framework.
• Examine the cross-quantity substitution effects

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Material and Methods
The Inverse Almost Ideal Demand System (IAIDS)
Model
i, j Gu, Ch, Pa, Im
wit is the expenditure share for oysters
supplied from region i or imports at time t. qj
is quantity of oyster per 1,000 people supplied
from region j (or Imports) at time t. Q is the
Laspeyres quantity index. ?ts is seasonal dummy
variable . Vib is a Vibrio dummy
variable. Trend is time trend variable.
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Methods

• The IAIDS model for Gulf, Chesapeake, Pacific,
  and imported oysters is estimated based on
  quarterly time series data covering the period
  1985(1)-2003(4).
• Homogeneity and symmetry restrictions are imposed
  on the estimated model.

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RESULTS AND DISCUSSION
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Estimated Parameters from the IAIDS Model for
Oysters
Note seasonal shifts in the intercept are not
reported in this table
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Impact of Mandatory Labels

• The mandatory labels and related media attention
  was estimated to
• Decrease the budget shares of the Gulf and
  Chesapeake products by 8.7-8.9
• Increase the budget shares of the Pacific and
  imported products by 8.5-9

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Impact of Mandatory Labels

• An alternative model functional form which allows
  for a gradual decline in the effect of warning
  labels was also considered.
• The Vibrio dummy variable was insignificant
  across all share equations when its starting
  period moved back or forth two or three years.
• The parameters estimates were very stable after
  deleting the last five years of data from the
  analysis.

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Uncompensated Price Flexibilities
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Price Flexibilities

• All own price flexibilities are negative as
  theoretically expected.
• All cross price flexibilities were found to be
  negative which classifies all products as gross
  substitutes
• The Gulf product was found to exhibit a
  relatively strong cross-quantity substitution
  effect with the imported and Chesapeake products.

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Price Flexibilities

• The Chesapeake product has very weak
  cross-quantity substitution effect with oysters
  from other regions.
• The Pacific product was found to have a strong
  cross-quantity substitution effect with the Gulf,
  Chesapeake, and imported oysters.

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Conclusions

• The model results suggest a decline in the Gulf
  and Chesapeake shares by about 9 and a
  corresponding increase in the Pacific and import
  shares.
• The Gulf, Chesapeake, Pacific, and imported
  oysters are gross substitutes.
• The estimated cross price flexibilities suggest
  that the Gulf and Pacific products have strong
  quantity-substitution effects on other products.