When Bigger Isn't Better

One of my Ph.D. students at Oklahoma State (and soon to be faculty member at Mississippi State University) has been working on an interesting paper on the impacts of changing cattle sizes on the desirability of steaks.  The average beef cow now weights more than 300lbs more than it did a few decades ago.  Generally that's a good thing as we can get more meat from fewer animals (which means less resource use, less land, less greenhouse gas emissions, etc. in addition to lower prices for consumers).  

But, there's a downside:

As a response to varying muscle sizes such as the ribeye, grocery stores and restaurants are often forced to adjust the thickness to which the steaks are cut in order to meet a target weight. Thus, a ribeye steak from a carcass with a large [loin] will likely be cut thinner than a ribeye steak from a carcass with a smaller [loin]. This has led to the introduction of “thin cut” steaks in some grocery stores. Compounding the issue of altering larger steaks are the historically strong beef prices. Some retailers utilize target prices for packages of steaks. Therefore, consumers are not only facing high beef prices, but also an increase in total package price due to the larger dimensions of the steak. This has caused retailers to reduce thickness to meet a target package price.

The key question, then, is whether people prefer thicker steaks with smaller surface areas (like those that existed 20 years ago) or thinner steaks with larger surface areas (like those that sell today)?  To address this question, a survey was taken by a representative sample of over 1,000 steak consumers.  We gave consumers choices like the one below, and asked which steak they'd choose.  Consumers answered a number of these questions where the steak thickness, area, and price, systematically varied across choices.  

So, what did we find?  For most consumers, there is a trade off between thickness and size.  Moreover, it seems changes in thickness are more important than changes in size.  As a result, most consumers are less happy with the steaks they see today in the grocery store (holding prices constant).  That is, consumers prefer a thicker, smaller area steak to a thinner, larger area steak.  We use the estimates to do a little thought experiment.  How much additional money would have to be to give to today's consumers to make their steak choices as satisfying as they were 40 years ago (in terms of thickness and area, holding prices constant)?   

Table 6 reports the estimated welfare changes by moving from a scenario where the choice set include small area and thick steaks (40 years ago scenario) to a scenario where the choice set includes large area and thin steaks (today scenario). Estimated welfare changes were
calculated for the conditional logit model as well as the two classes from the latent class model
which had statistically significant estimates for price per package. The welfare change estimate
from the conditional logit model implies that moving from the scenario representing 40 years ago to today’s scenario decreased welfare by $5.37 per choice, an amount that is statistically
significant at the five percent level. When multiplied by the number of steak purchases in the U.S. each year, estimates from latent classes one and two suggest decreases in total welfare of
$5.8 billion and $2.8 billion respectively, by moving toward a choice set with large area and
thin steaks, though the estimate for class one is not statistically significant at the 5 percent level.

Now, it should be noted that consumers might be, overall, better off from changing cattle sizes because they now have more ground beef available and because prices are lower than they'd otherwise be.

Josh's paper was accepted for presentation in one of the new lightening sessions at the AAEA meetings this year in Boston.  These are short sessions where authors have only seven minutes to present their work.  Here's Josh presenting this paper in lighting session format.