Journal of Agricultural and Applied Economics, 28,1 (July 1996):203-210 @ 1996 Southern Agricultural Economics Association Nonconstant Price Expectations and Acreage Response: The Case of Cotton Production

An adaptive regression model is used to examine the relative importance of cash and government support prices in determining cotton production over time. The results show that the cash price is more important as a source of price information for cotton producers than the government program price. The cash price was shown to have a greater influence on acreage response in every year, includ-ing periods thought to be dominated by government commodity programs. Key Words: adaptive regression, cotton acreage response, price expectations. Research on acreage response has always encoun-tered the formidable challenge of identifying factors that influence producers ’ decisions under a constantly changing production environment. Among the most difficult of these factors to iden-tify is the expected output price that drives the pro-duction decision. The potential returns to produc-tion are the primary driving forces behind acreage decisions (Nerlove). Thus, models of acreage or supply response must incorporate some measure of the expected output price. These price expectations are unobservable and are influenced by a wide vari-ety of factors. Because this “supply-inducing ” price is unobservable, researchers must develop proxies for use in empirical analyses. It is not rational to assume that producers evalu-ate a single source of price information. Rather, considering improvements in market informatio