Evaluating alternative price expectation models for multiproduct supply analysis
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Neoclassical economic theory provides an important conceptual framework for the analysis of agricultural
production. Theory provides little guidance, however, in the actual specification of empirical models. This paper
applies an integrated approach for choosing between price expectation mechanisms in a multiple-equation model
when the alternatives are non-nested. Nine alternative specifications of market price and policy information are
developed. Price forecasting accuracy, non-nested tests of hypotheses, and out-of-sample predictive accuracy are
examined for agricultural production in Iowa. The results call into question the reliability of using forecasting
accuracy as the sole guide to selecting a price expectation proxy.