Welfare Measurement Biases and Product Differentiation in Agriculture: An Example from the US Beef Sector

This paper examines the impact of two different model specifications on welfare estimations. A model specification that takes into account product differentiation is compared to a specification where the product differentiation is overlooked. The welfare comparison under both specifications show some biases of aggregation as well as ambiguous results: the welfare under one specification may be larger or lower than the welfare under the alternative assumption. In order to illustrate our theoretical conclusions, we present an application to the US beef market. We show that the welfare, when the product differentiation is taken into account, is smaller than the welfare when the product differentiation is omitted.