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When are Supply and Demand Determined Recursively Rather than Simultaneously? Another look at the Fulton Fish Market Data

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  • Kathryn Graddy
  • Peter E. Kennedy

Abstract

When a supply and demand model is recursive, with errors uncorrelated across the two equations, ordinary least square (OLS) is the recommended estimation procedure. Supply to a daily fish market is determined by the previous night`s catch, so this would appear to be a good example of a recursive market. Despite this, data from the Fulton fish market are treated in the literature, without explanation, as coming from a simultaneous-equations market. We provide the missing explanation: inventory changes, influenced by current price, affect daily supply. Instrumental variable estimates using the full data set differ very little from OLS estimates using only observations with little inventory change, providing strong support for our explanation. Finally, we note that because of inventory changes, estimates of supply price elasticities in high-frequency markets must be interpreted with care.

Suggested Citation

  • Kathryn Graddy & Peter E. Kennedy, 2006. "When are Supply and Demand Determined Recursively Rather than Simultaneously? Another look at the Fulton Fish Market Data," Economics Series Working Papers 297, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:297
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    References listed on IDEAS

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    1. repec:bla:jecsur:v:16:y:2002:i:4:p:569-89 is not listed on IDEAS
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    4. Joshua D. Angrist & Kathryn Graddy & Guido W. Imbens, 2000. "The Interpretation of Instrumental Variables Estimators in Simultaneous Equations Models with an Application to the Demand for Fish," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(3), pages 499-527.
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    More about this item

    Keywords

    Simultaneous Equations; Inventories; Demand; Estimation; Fish; Fulton Market;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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