The name is absent

the negative effect of beef safety stories on beef consumption was small (when compared to health
effect) and only marginally statistically significant. The analysis by Piggott and Marsh (2004) is
the first demand study that incorporated multiple food safety indices constructed individually for
beef, pork and poultry. In contrast to ealier studies, they were able to investigate both the own- and
cross-effects of food safety indices on meat types. While statistically significant food safety effects
were detected, their economic significance appeared to be modest relative to price and expenditure
effects. These results were confirmed by Marsh, Schroeder and Mintert (2004) who found small
effects of meat product recalls on U.S. meat demand.

Traditionally, most studies of meat consumption have followed the static demand system par-
adigm in that the consumption decisions are functions of current prices, income, and possibly a
few other demographic and health variables. Exceptions include Pope, Green and Eales (1980)
and Holt and Goodwin (1997) where dynamic aspects of meat demand were explored by testing
for the existence of habit formation. In these studies, the household is backward-looking in that
habits play a passive role and do not alter the duality theorems of standard static optimization.
This type of habits is called myopic habits. In contrast to the existing literature on meat demand,
the estimation in this paper is based on the optimality conditions derived from an intertemporal
optimization problem with rational expectations assumed.

The construction of a meat demand model under rational expectations is implicitly motivated
by the Lucas (1976) critique which contends that the parameters of conventional macroeconomic
models rest critically on parameters dictating agents’ expectation processes and are possibly unsta-
ble in a varying economic environment. To overcome this problem, some empirical studies focus on
the estimation of “deep” behavioral parameters that have explicit structural interpretations. In the
case of meat consumption, expectations are important for modeling habitual demand while almost
irrelevant for demand models that are intertemporally separable (Zhen and Wohlgenant, 2005).

Food safety and habit persistence are not two unrelated issues that may be treated separately.
Habituation of demand provides a convenient tool with which consumption dynamics could be
rationalized. Under habit persistence, food scares that may have a short-lived direct impact on
demand could have protracted indirect effects by changing the level of habit stock.

More importantly, if meat consumption is habit-forming, rational consumers respond more to
permanent food safety shocks than to transitory shocks. But this distinction is not implied by a

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