IS THE EFFICACY OF AGRICULTURAL PROMOTION PROGRAMS OVERESTIMATED? THE IMPORTANCE OF DYNAMICS IN ADVERTISING DEMAND SYSTEMS

This article outlines the shortcomings of current techniques to assess the effectiveness of agricultural commodity promotion campaigns; particularly their neglect of the dynamic nature of the underlying demand system. The dynamics that affect advertising effectiveness over time are illustrated, and the importance of cointegration in commodity markets is outlined. A dynamic, error-correction Almost Ideal Demand System is developed to accommodate the aforementioned dynamics and this model is applied to US meat data. Short and long-run elasticities for the dynamic model using Stone's price index are derived and estimated. The article also includes a discussion of the use of elasticities in policy decisions.