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Expected Utility, Risk, and Marketing Behavior: Theory and Evidence from the Fed Cattle Market
Author(s) -
Fausti Scott W.,
Wang Zhiguang,
Lange Brent
Publication year - 2013
Publication title -
canadian journal of agricultural economics/revue canadienne d'agroeconomie
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 37
eISSN - 1744-7976
pISSN - 0008-3976
DOI - 10.1111/j.1744-7976.2012.01261.x
Subject(s) - fed cattle , risk aversion (psychology) , linkage (software) , quality (philosophy) , marketing , preference , business , microeconomics , risk perception , production (economics) , marketing channel , economics , industrial organization , perception , expected utility hypothesis , financial economics , zoology , biochemistry , chemistry , philosophy , epistemology , neuroscience , gene , biology
The effect of carcass quality uncertainty on the structure of the slaughter cattle market is investigated. A theoretical extension of the “Theory of Factor Price Disparity” is provided. It is demonstrated that the coexistence of a risk premium wedge between marketing channel (live weight, dressed weight, and grid) pricing mechanisms, in conjunction with varying degrees of producer risk aversion or producer perception of carcass quality uncertainty, contributes to the coexistence of multiple marketing channels. It is also demonstrated that risk and risk preference provide the linkage between carcass quality uncertainty and producer marketing decisions. We demonstrate how this linkage can affect the structure of the fed cattle market and the variability in slaughter volume across marketing channels. We also confirm the linkage between value‐based production techniques that increase seller information on carcass quality and seller increased usage of grid pricing regardless of actual carcass quality. Empirical evidence is provided in support of the supposition that carcass quality uncertainty plays a role in grid market share variability.