Whence the Beef?: The Effect of Repealing Mandatory Country of Origin Labeling (COOL) Using a Vertically Integrated Armington Model with Monte Carlo Simulation

58 Pages Posted: 27 Nov 2016

See all articles by Ross Hallren

Ross Hallren

U.S. International Trade Commission

Alexandra Opanasets

NYU Shanghai

Date Written: August 31, 2016

Abstract

Increasingly, international trade policy analysis explores the economic effects of changes in ad-valorem tariffs, or ad-valorem equivalent non-tariff measures, on vertically integrated markets for which high quality data are not available. Standard Constant Elasticity of Substitution (CES) Armington models fail to account for either vertical linkages or parameter uncertainty. Here we introduce a modified Armington CES vertically integrated two-sector model, with nested Armington Elasticities, that incorporates uncertainty in the estimates of Armington Elasticities and market shares through a Monte Carlo simulation. As an illustrative case, we model the effects of changes in country of origin labeling (COOL) rules on the market shares of domestic and foreign cattle in the U.S. beef market. By accounting for parameter uncertainty in this way, we are able to illustrate the distribution of potential effects of repealing mandatory COOL. Moreover, we are able to decompose the effect of repealing COOL via its effect on relative prices, information available to consumers, and the quasi-general equilibrium effect. Finally, we uncover the conditions under which Canada and Mexico would benefit from the repeal of mandatory COOL by at least as much as they claim in their WTO filings against the regulation.

Keywords: Country of Origin Labeling, COOL, Armington CES, Partial Equilibrium, Monte Carlo

JEL Classification: F13, F17, D58

Suggested Citation

Hallren, Ross and Opanasets, Alexandra, Whence the Beef?: The Effect of Repealing Mandatory Country of Origin Labeling (COOL) Using a Vertically Integrated Armington Model with Monte Carlo Simulation (August 31, 2016). Available at SSRN: https://ssrn.com/abstract=2874970 or http://dx.doi.org/10.2139/ssrn.2874970

Ross Hallren (Contact Author)

U.S. International Trade Commission ( email )

500 E St SW
Washington, DC 20436
United States

Alexandra Opanasets

NYU Shanghai ( email )

1555 Century Ave
Shanghai, Shanghai 200122
China

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