A Note on Homogeneity Bias in Equilibrium Displacement Models

ABSTRACT

The purpose of this Note is to measure the homogenous of degree zero (HOD0) bias discussed in Brester et al.'s (2023a) book on equilibrium displacement models. It does so by inserting parameter values for the US beef and pork industries into a restricted form of the model Brester et al. set forth to illustrate the bias. Simulating the model for isolated shifts in farm supply and retail demand, results suggest the bias is nontrivial. And this is true for welfare effects as well as for price and quantity effects.