Distinguishing beliefs from preferences in food choice

That's the title of a paper I co-authored with Glynn Tonsor and Ted Schroeder, which is forthcoming in the European Review of Agricultural Economics.  The abstract:

In the past two decades, there has been an explosion of studies eliciting consumer willingness-to-pay for food attributes; however, this work has largely refrained from drawing a distinction between preferences for health, safety and quality on the one hand and consumers' subjective beliefs that the products studied possess these attributes, on the other. Using data from three experimental studies, along with structural economic models, we show that controlling for subjective beliefs can substantively alter the interpretation of results and the ultimate implications derived from a study. The results suggest the need to measure subjective beliefs in studies of consumer choice and to utilise the measures when making policy and marketing recommendations.

We show applications related to tenderness, added growth hormones in beef, and country of origin labeling.  Here are a couple excerpts:

The reason why the conventional ‘reduced form’ model yields a potentially misleading result is that it does not take into account the fact that most people believe that the generic steak is safe. The reason the premium for natural over generic was so low in the ‘reduced form’ model was not because people did not care about safety but rather because they, on average, believed the health risks from growth hormones and antibiotics in the generic steak were low.

and

the results reveal that, at the mean beliefs, consumers are WTP a premium of only about USD 1.68 . . . for a US origin steak relative to the ‘weighted average origin’ steak. The reason why the value is so low is that most people believe the unlabelled steak is highly likely to come from US origin.

The estimates allow us to make interesting calculations like:

of the total WTP premium for guaranteed tender steak, 46 per cent is due to perceived value of added tenderness; the remaining 54 per cent is due to other factors. A similar computation reveals that of the total WTP premium for natural steak over the generic steak, only 38 per cent is due to perceived added healthiness or no hormone use; the remaining 62 per cent is due to other factors.

and

The implication is that when a product has a mixed-origin label, people are
apparently pessimistic, believing the joint-labelled product to have a much
higher likelihood of coming from the less-preferred origin.

Value of USDA Data

Today, the Council on Food, Agricultural, and Resource Economics (C-FARE) released a report I lead authored on the value of USDA Data Products entitled From Farm Income to Food Consumption: Valuing USDA Data Products.

Frequent readers of this blog know my free-market orientation.  Provision of information is, however, one of those areas where the government (potentially) has a legitimate role to play  (the report itself discusses these motivations).  In the book Free to Choose, Milton and Rose Friedman, in their discussion of the proper role of government, use the analogy of government as umpire - not a player in the game or picking sides, but a facilitator and enforcer of the rules of the game.  Providing information on prices, production, etc. is, in my mind, an umpire-like role.  And a potentially useful one at that. 

Now that doesn't tell us anything about whether the government is providing too little or too much information, whether it is doing it cost effectively, or whether private companies might fill the gap if the government stopped providing information.  And these were the sorts of questions the report sought to provide insight into.  One of the things we learned is that we just don't know as much about those questions as we probably should.  

Interestingly (and perhaps ironically), the report was set to release the day the government shutdown occurred.  After the shutdown, the USDA blocked access to most of its online data sources, which I personally found annoying because it is hard to see how it requires any additional cost to run to servers that provide the data vs. the servers that put up pages blocking me from the data.  It came across as a show of power and blatant attempt to make the shutdown more difficult than it need be - hardly a way to make the public believe this is "our" government owned by "us" (admittedly, there may have been legal reasons of which I am unaware explaining why the data couldn't be displayed).  

In any event, the shutdown provided an interesting case study into the value of USDA to many agricultural sectors.  There was a lot of hand wringing, for example, in livestock industries because many cattle and hogs are priced on some formula based off of a USDA reported price (which went unreported during the shutdown).  However, there were several stories (e.g., here or here) of feedlots and packers quickly adjusting, and I suspect that if the shutdown would have continued longer, new institutions would have evolved to fill the role that the USDA data currently serves.  They may not have been as efficient or trustworthy (or they might be more so), we just don't know.  An aspiring researcher could use the government shutdown as one way to test how the provision of USDA data affects market performance.  

One of the key outputs of the C-FARE report is a strategy or approach for the USDA to use when prioritizing data products.  Regardless of one's view on the appropriate size of government, I think we would all agree that it is good that the government uses whatever resources it acquires most effectively.  In a climate of tightening budgets, that means thinking carefully and systematically about which data product eliminations (or which alterations in data products) are most efficient.  I hope the report can help, even if just a little, in that task.

How much do you value the present over the future

Economists have long been interested in people's "discount rates" - the rate at which people discount the value of a dollar in the future as compared to a dollar today.  If given the choice between being given a dollar today or a dollar ten years from now, I suspect almost everyone would take the dollar today.  The key question researchers try to answer is this: exactly how many dollars would you have to be given in, say, 10 years to make you indifferent to 1 dollar today?  

What this number is has important implications for how we should "discount" the value of projects that provide benefits in the future by incurring costs today.  Examples where a discount value is needed include road building, going to college, and building a factory.  But, the issue has become particularly heated in relation to debates over climate change.  Whether and to what extent one is willing to incur costs today to mitigate carbon emissions depends critically on the extent to which the future benefits (and potential costs) are discounted.   

One can get a feel for this time trade-off by looking at market interest rates but that doesn't tell the whole story.  As a result, many economists have turned to laboratory experiments where people make choices like the one I described above.  The trouble has been that such experiments have been limited to making future payoffs that are typically only 1 to 6 months away.  My co-authors, Threse Grijalva and  Douglass Shaw, and I found away around this, and the results are discussed in a paper forthcoming in the journal Environmental and Resource Economics: 

We use a laboratory experiment to elicit discount rates over a 20-year time horizon using government savings bonds as a payment vehicle. When using a constant (exponential) discount rate function, we find an implied average discount rate of 4.9 %, which is much lower than has been found in previous experimental studies that used time horizons of days or months. However, we also find strong support for non-constant, declining discount rates for longer time horizons, with an extrapolated implied annual discount rate approaching 0.5 % in 100 years. There is heterogeneity in discount rates and risk preferences in that people with more optimistic beliefs about technological progress have higher discount rates. These findings contribute to the debate over the appropriate discount rate to use in comparing the long-term benefits of climate change mitigation to the more immediate costs.

Experimental Auction Summer School

For the 3rd year in a row, I've had the privileged to co-teach a summer school for the University of Bologna in Italy with Rudy Nayga, Andreas Drichoutis, and Maurizio Canavari.  The topic of the school is experimental auctions, which is a method used to measure consumer preferences and study consumer behavior. 

We have a great group of students this year from Italy, Germany, Sweden, France, South Africa, China, Thailand, and the U.S, among other places.   Here are a few of us learning a bit about the history of Bologna on our day off.

We also caught a couple races at the Dino and Enzo Ferrari Autodrome race track in Imola.  After the Ferrari's and Lamborghini's cleared the track, they had an interesting race with Mini Coopers.

Today we are back at work thinking about economics, consumer behavior, food policy, and food marketing.   

My colleagues have had a good time harassing me about eating horse meat (yes, I willingly ate some two days ago and I'm pleased to say it was perfectly eatable as I've previously argued) and organics (for my latest take on that one see here), and why Americans eat differently than Europeans.  

Here's the whole group just outside the classroom:

Am I Pro- or Anti-Garden?

Partially in response to the opening lines of my piece in Townhall magazine related to the Obama's White House garden, one of my colleagues (Francis Epplin) said he didn't understand my objection to gardens, and he pointed out that they are bi-partisan (apparently our Republican-led Dept of Ag in Oklahoma has a garden too).    

My response was that I didn't mean to come across as "anti garden." Up until a couple years ago, my 91 year old grandmother grew tomatoes, okra, and other goodies in her backyard.  That said, I do find it strange when public officials (whether Obama or Governor Fallin) grow "symbolic" gardens.  In these cases, I think it is fair to ask what is being symbolized and ask whether the arguments used to promote gardens hold up to the scientific evidence.  Of course not all gardens are symbols of something bigger, and it seems perfectly reasonable for someone to say they grow a garden because "they like to."  There are certainly worse things one can do with their time.   

In any event, Epplin advanced an interesting hypothesis, which he consented to me sharing here:  

My hypothesis would be that families that grow, or try to grow gardens, would have a better understanding of the weed and pest challenges encountered by farmers.  I would also hypothesize that they would be more sympathetic toward herbicides and pesticides.

This is a testable hypothesis and would make a great research project.  A part of me thinks Francis is right.  However, tending a garden is also different than managing a 1000 acre farm, and I'm not sure it translates.  Indeed, I think it is possible that just the opposite opinion will be formed.

This reminds me a bit of the conversation that came up in the Food Dialogues Event I participated in a couple months ago.  The former deputy secretary of agriculture, Kathleen Merrigan, talked about farmers selling at farmer's markets as being agricultural ambassadors and representing farmers more generally.  The implication was that such farmers would help the average consumer better understand production agriculture.  However, someone in the audience made a good point when he argued that the farmer at the farmers market was not the same kind of farmer he was.  The implication is that the guy at the farmers market was just as apt to say something bad about his farm than be an ambassador.  

Will gardens or farmers markets make people more or less accepting of modern production agriculture?   

I don't know.