Monthly Archives: November 2017

Dr Adelina Gschwandtner

Taste and health benefits key reasons for buying organic food

Shoppers usually claim they buy organic food because it is environmentally friendly and has higher standards of animal welfare. However, research has found that in reality better taste and health benefits are key motivators for buying organic produce.

Lecturer Dr Adelina Gschwandtner from the School of Economics, analysed the organic shopping habits of consumers in Canterbury to discover their price thresholds and rationale for buying organic foods such as chicken, milk, bananas, carrots and apples.

In total 104 individuals were surveyed about their organic food preferences and buying habits after they had left one of three major supermarket chains. They were asked about their willingness to pay more for organic food and their reasons for doing so, or not doing so, and their till receipts were analysed.

The data found that were spending an average of £3.84 of their total bill on organic produce, around 26% of the total. This is higher than many previous studies have found and suggests attitudes towards purchasing organic food are changing.

Indeed, when buyers were asked about how much of a willingness they have to pay for organic produce most responses were at an average of a 13% premium on non-organic products. However, in reality most consumers actually paid an average of 9% more for organic products.

While there is a gap between the premium people say they will pay for organic products and what they actually will spend, the fact people will pay more is notable.

However, meat items, where price premiums are often highest, remain a small part of organic sales, with just 3% of meat products sold from organic producers, suggesting people are still unwilling to pay more for meat items labelled organic.

Despite this when asked why they were willing to pay more for organic items most consumers stated they bought items for ‘non-personal’ benefits such as the belief organic food is environmentally friendly and meat is produced in more ethically acceptable ways.

But when the data from the surveys was analysed about what influences decisions to buy organic food it showed that ‘selfish’ reasons such as improved taste and health benefits are in fact the strongest drivers to buying organic food.

The findings could help supermarkets, organic food producers and even governments reconsider how they advertise organic produce to appeal to buyers by promoting taste and health benefits, rather than focusing on the environmental benefits of organic food, as is usually promoted.

The paper, entitled The Organic Food Premium: A Local Assessment in the UK, has been published in the International Journal of the Economics of Business (IJEB).

-ENDS-

Article by Dan Worth, University of Kent Press Office

Dr Maria Garcia-Alonso

Strategic trade control contract award

Dr Maria Garcia-Alonso from the School of Economics has been awarded a partnership in a framework contract for the provision of expertise on strategic trade control-related activities. The framework contract will provide the Joint Research Centre of the European Commission with technical expertise and support from external academia experts with proven experience in the field for thematic multi-disciplinary research work, preparation of training material and delivery of training, editorial and web support content.

The contract will be led by Professor Dr Quentin Michel from Université de Liège with other partners from King’s College London, Stockholm International Peace Research Institute, the Institute of Customs and International Trade Law and Dr Angelo Minotti.

Dr Alex Klein

Was Domar Right? Serfdom and Factor Endowments in Bohemia

by Alexander Klein and Sheilagh Ogilvie, discussion paper KDPE 1717, October 2017.

Non-technical summary:

What causes labor coercion? It appears informally in most economies, but in some it prevails as a formal system of slavery or serfdom, with wide economic repercussions. Serfdom existed in most European economies for long periods between c. 800 and c. 1860. In many serf economies, most rural families were obliged to do coerced labor for landlords. Since the rural economy produced 80 to 90 percent of pre-industrial GDP, serfdom affected the majority of economic activity. Labor coercion under serfdom reduced labor productivity, human capital investment, innovation, and living standards, so much so that its varying intensity is widely regarded as a major determinant of divergent European economic performance between 1350 and 1861. One well-known explanation is Domar’s (1970) conjecture that coerced labor systems were caused by high land-labor ratios. In economies where wages were high because labor was scarce relative to land, Domar argued, landowners devised institutions such as serfdom and slavery to ensure they could get labor to work their land at a lower cost than would be the case in a non-coerced labor market. To the best of our knowledge, this paper provides the first investigation of coerced labor under serfdom using quantitative evidence and multivariate statistical approaches. We hold constant political-economy variables – power, the state, and the institutional framework legitimizing labor coercion – by analyzing a specific serf society: Bohemia (part of the modern Czech Republic). We calculate quantitative measures of labor coercion, the land-labor ratio, urban potential, and other socio-economic characteristics of over 11,000 serf villages, covering the entirety of Bohemia in 1757. We use these data and the theoretical framework proposed by Acemoglu and Wolitzky (2011) to investigate how the land-labor ratio affected labor coercion, controlling for other causal variables.

We find that where the land-labor ratio was higher, labor coercion was also higher, and thus that the Domar effect outweighed any countervailing outside options effect. The net effect was not huge, but nor was it trivial, and it was magnified when labor coercion included both human and animal energy. The relationship between the land-labor ratio and labor coercion under serfdom displayed a nonlinear shape, arising from the technical limits on coercion in conditions of extreme labor scarcity. We also present evidence which supports Acemoglu and Wolitzky’s conjecture that serfdom was strong in eastern Europe partly because the urban sector was too weak to generate outside options for serfs that reduced the productivity of labor coercion.

Our findings demonstrate that factor proportions affected coercion. Even if political economy factors play a dominant role in explaining differences across countries and many other variables influenced landlord extraction from serfs, the land-labor ratio influenced labor coercion and thus contributed to serfdom as a broader institutional system. This in turn implies that institutions are influenced, at least to some degree, by economic fundamentals.

You can download the complete paper here.

Dr Alfred Duncan

Disputes, Debt and Equity

by Alfred Duncan and Charles Nolan, discussion paper KDPE 1716, July 2017.

Non-technical summary:

We provide a new justification for the widespread use of debt finance as an alternative to equity finance. We show that when the returns of investment projects can only be partially observed by outside financiers, and this partial observation is itself costly, then the optimal contract agreed between entrepreneurs and outside financiers takes the form of a standard debt contract.

This finding builds on existing literature that had shown the benefits of debt finance in settings where outside financiers were either unable to commit to future audit strategies, or were unable to implement audit strategies with randomization. Our model builds on this literature by extending the prediction of debt finance as optimal to a wider range of settings, helping to match empirical regularities.

We produce numerical estimates of contract terms for a simulated version of the model; we show that the model can reproduce key features of the data including leverage, interest rate spreads, and probabilities of default. We also show that in a special case of our model, closed form solutions for leverage and interest rate spreads can be described in terms of model parameters.

You can download the complete paper here.

A new home for our school

The School of Economics is excited to reveal plans for a move to a new building, which will provide a stronger visual focus, identity and community for the School. In particular, space which is open to all the School’s students will for the first time allow its undergraduate students a physical presence within that community. The building will provide the School with a modern, identifiable home.

The building will house improved facilities for students and staff, such as social spaces, meeting rooms and an IT suite. Two floors of one wing will house shared teaching space and the rest of the building will be dedicated for the School’s use.

It is planned the building will be ready in time for the start of the 2019-20 academic year.

Take a look at our website to see further details and architect’s images.

Dr Alex Klein

A Long-Run Perspective on the Spatial Concentration of Manufacturing Industries in the United States

by Nicholas Crafts and Alexander Klein, discussion paper KDPE 1715, August 2017.

Non-technical summary:

It is well-known that patterns of regional specialization and the spatial concentration of manufacturing industries have changed markedly over time. Kim and Margo (2004) describe a trajectory where regional divergence developed in the context of industrialization during the late 19th and early 20th centuries but was then superseded by regional convergence in the second half of the 20th century. Holmes and Stevens (2004) stress that this latter phase is notable for the decline of the manufacturing belt in which 70 per cent of manufacturing employment was located in 1947 but only 40 per cent by 1999. Since Kim wrote his paper, which has become the standard reference on the topic, there have been important developments in the measurement of spatial concentration. Ellison and Glaeser (1997) explained that it is important to control for differences in the size distribution of plants when measuring spatial concentration and developed an index in which a measure of raw geographic concentration is modified by taking account of the plant Herfindahl index. An important refinement to the basic EG index is to take account of the geographical position of regions through allowing for ‘neighbourhood effects’. This leads to the spatially-weighted version of the EG index proposed by Guimarães et al. (2011) which represents a significant advance on Hoover’s localization coefficient.

In this paper we re-examine long-run trends in the spatial concentration of U.S. manufacturing industries over the long run. In particular, we construct a new dataset which permits the calculation of a spatially-adjusted version of the EG index at both SIC2 and SIC3 levels for selected census years from 1880 through 1997. Several important new results emerge from this exercise. First, we find that average spatial concentration was much lower in the late 20th than in the late 19th century and that this was the outcome of a continuing reduction over time.

Second, the persistent tendency to greater spatial dispersion was characteristic of most manufacturing industries. Third, even so, economically and statistically significant spatial concentration was pervasive throughout this period.

You can download the complete paper here.