The article studies the link between the perceived length of a policy and the responses of inventory and investment during the worldwide ban of imported beef from Canada following the discovery of a cow infected with bovine spongiform encephalopathy (BSE). The actual ban lasted approximately 3 months. The calibrated model generates a 59% decrease in investment compared with a 55% decline in the data. The price series is the Farm Product Price Index for cattle and calves from Statistics Canada. Between May and July, prices fell more than 60%. Prices rebounded in September as the ban was lifted, but did not return to pre-ban levels. This is partially explained by the fact that prices before the BSE discovery were at a cyclically high point in early 2003. If the expected improvement is small, or perceived as unlikely, producers will liquidate their stocks to save on inventory costs.
All Science Journal Classification (ASJC) codes
- Agricultural and Biological Sciences (miscellaneous)
- Economics and Econometrics