Dynamic Adjustment in Vertically Linked Markets: The Case of

This duality model is used to investigate the dynamic structure of vertically linked sectors of the U.S. beef industry. The model employed allows for explicit hypothesis tests of the adjustment process and technology change. Vertically related sectors of the beef industry are included to emulate the organizational structure of the industry. Results suggest that the cow-calf, feedlot, and beef processing sectors of the u.s. industry face significant adjustment costs. Another important finding is that imports may provide a way for the U.S. beef industry to adjust to short-run market changes. Key words: beef cattle, dynamic adjustment, production theory, trade. The U.S. beef industry historically has experi-enced difficulty adjusting to short-term changes in market conditions. This is exhibited by the commonly observed cattle cycle and caused by long biological lags of production and limited storage due to perishability. There are also sig-nificant adjustment costs in processing and wholesaling because of capacity constraints (Ward). Previous studies of the beef production sector have recognized this fixity and have ac-counted for it through the use of partial adjust-ment processes based on prior information on biological lags (Marsh; Arzac and Wilkinson; Nelson and Spreen; Shonkwiler and Hinckley