The transmission of signals in a decentralised commodity marketing system: the case of the UK Pork Market
File(s)
Author(s)
Prakash, Adam B.
Abstract
This thesis seeks to analyse agricultural price and volatility transmission through addressing the theoretical structure that embodies these processes, and formulating econometric models, that are consistent with this structure and the nature of the data employed. It is felt that previous research has not paid sufficient regard to these critical aspects of economic inquiry. Price has a crucial informational role, in generating, aggregating and transmitting information, and its role lies at the core of economic theory. From this fundamental perspective, 'price transmission in a vertical commodity marketing system' can be viewed as a 'process dependent on information conveyance in a system of markets embodying information for price determination in subsequent levels'. However, in order for this process to be effective, agents must have the ability to observe the price system. This is facilitated when trading is entertained in a centralised public arena, so that all agents can infer information from observing prices. It is departures from this conception that provide an insight into why observed processes of price transmission are potentially imperfect. That is, when prices are discovered in a decentralised environment, the transmission of signals over time may not be rapid or symmetric. Potential sources of 'imperfect transmission include differential information, het .ogeneous expectations, disequilibrium transacting and signal extraction problems.
Using the UK pork producer-processor interface as the empirical example, previous models of agricultural price transmission are estimated, and their methodology scrutinised. These models have ignored long-run information, disregard information from higher moments of the market process, and generally do not have a foundation in which to incorporate price adjustment theory. In response a structural-asymmetric-error-correction framework is advanced, consistent with the data and theory, that embodies the properties of the decentralised economy. Volatility transmission is analysed in a signal extraction framework using an EGARCH-ECM formulation. The motivation behind the model stems from the problems of thinned auction markets, a primary symptom of decentralisation. It is shown that at the producer-processor boundary, the transmission of price signals in the short-run are asymmetric, gradual and that predictable volatility is transmitted in the system. In response to these findings, a centralised price discovery system, such as electronic auction marketing is proposed. This will result in greater information conveyance, which in theory, should result in an improvement in the efficiency and efficacy of signal transmission, and thus ameliorate the problems of the decentralised economy. The research benefits of employing ECM formulations in studying price transmission, are further highlighted,
Using the UK pork producer-processor interface as the empirical example, previous models of agricultural price transmission are estimated, and their methodology scrutinised. These models have ignored long-run information, disregard information from higher moments of the market process, and generally do not have a foundation in which to incorporate price adjustment theory. In response a structural-asymmetric-error-correction framework is advanced, consistent with the data and theory, that embodies the properties of the decentralised economy. Volatility transmission is analysed in a signal extraction framework using an EGARCH-ECM formulation. The motivation behind the model stems from the problems of thinned auction markets, a primary symptom of decentralisation. It is shown that at the producer-processor boundary, the transmission of price signals in the short-run are asymmetric, gradual and that predictable volatility is transmitted in the system. In response to these findings, a centralised price discovery system, such as electronic auction marketing is proposed. This will result in greater information conveyance, which in theory, should result in an improvement in the efficiency and efficacy of signal transmission, and thus ameliorate the problems of the decentralised economy. The research benefits of employing ECM formulations in studying price transmission, are further highlighted,
Version
Open Access
Date Issued
2019-01
Date Awarded
2019-01
Copyright Statement
Attribution-Non Commercial-No Derivatives 4.0 International Licence (CC BY-NC-ND)
Advisor
Balcombe, Kelvin
Publisher Department
Department of Agricultural Economics
Qualification Level
Doctoral
Qualification Name
Doctor of Philosophy (PhD)