INTERACTION EFFECTS OF PROMOTION, RESEARCH, AND PRICE SUPPORT PROGRAMS FOR U.S. COTTON



Qd + Qd = Qs
fd fx fd

Farm-level market clearance                                        (12)

where Qikj represents quantities for which k denotes quantity supplied (s) or demanded (d); i denotes
market level (retail [r], textile [t], or farm [f]); and j denotes domestic (d), export (x), or foreign (f). In
addition, Pr
d is the retail price for domestic cotton products, Prm is the retail price for imported cotton
products, A
g is generic promotion expenditures for cotton, Ab is branded advertising expenditures for
cotton, A
f is advertising expenditures for man-made fibers, Zr is a vector of demand factors in the retail
market other than advertising (e.g., income), Pt
d is the price of domestic intermediate cotton textiles, Ptm
is the price of imported intermediate cotton textiles, Wr is a vector of supply factors in the retail market
(e.g., retail wages, energy costs), Pc
d is the domestic price of cotton at the mill level (net of Step 2
subsidies), Pc
f is the price of foreign cotton fiber, Ra is agricultural cotton research expenditures (made by
both Cotton Incorporated (CI), the legal entity that implements the research and promotion activities
under the CRPP, and public institutions funding cotton research), Rt is nonagricultural research
expenditures made by CI, Wt is a vector of supply shifters for the cotton textile market (e.g., textile
wages, energy costs), W
f is a vector of supply factors for cotton producers (e.g., input costs, prices of
alternative crops), Zx is a vector of demand factors for export markets, Wm is a vector of supply factors
for foreign cotton textiles, and T
f represents shifters of the supply of raw foreign cotton.10

Because our emphasis is on raw cotton producers and that is the market level for which data are
most readily available, partially reduced-form supply and demand equations at the farm level are
estimated. To estimate these equations while incorporating effects from the other levels of the market, the

10Both branded promotional expenditures for cotton-containing products and promotional expenditures for substitute
products such as man-made fibers are important to consider and were part of our theoretical model. However, in the
final model estimated empirically, these variables are not included. Promotional expenditures for man-made fibers
were not included because no data were available. Branded promotional expenditures were proxied using Levi
Strauss expenditures, but their inclusion revealed no significant impact on the coefficient for CI promotion. Because
the available data series for these expenditures was shorter than for the other demand variables (and was available
only quarterly rather than monthly for part of the series) and did not reveal significant interaction effects with CI
promotion, they were dropped from the final model.



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