The optimal hedonic model structure for daily cotton market price reporting

Date

1993-08

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Abstract

In a market economy, prices are derived from supply and demand. However, in the market economy for cotton which varies in its quality attributes, implicit or hedonic prices can and are determined for each of its quality attributes. These implicit prices contain a relationship with the quality attributes that are theoretically and qualitatively recognized by the industry. This study conceptually derives a general pr1cequality relationship for cotton from the supply and demand sides of the market. It also theoretically evaluates this price-quality relationship for each and all recognized characteristics of cotton. These pricequality relationships were then analytically tested and determined through two functional form models for the Texas and Oklahoma markets. The findings of this study determined the optimal or "best" statistically determined functional form hedonic model structures for daily cotton market price reporting. The two structures were found to estimate prices, premiums, and discounts for the grading systems used before August 1, 1993, in which the grade code consisted of trash and color, and after August 1, 1993, in which the grade code will represent only color; trash and its sub-categories of bark and grass will be separately identified. The post-1993/94 model was found to contain no residual bias across attribute levels for all attributes and determined to be the "best" functional form to represent the price structures for the upcoming grading system.

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Keywords

Cotton -- Prices -- Econometric models, Cotton -- Grading -- Econometric models, Cotton -- Texas -- Marketing, Cotton -- Oklahoma -- Marketing

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