Input Substitution and the Distribution of Surplus Gains from Lower U.S. Beef‐Processing Costs

Analysis of a switch from boxed beef to tray‐ready beef processing demonstrates that limited substitution between farm and nonfarm inputs has a significant impact on the distribution of surplus gains. A two‐input, two‐output (beef and by‐products) industry model was specified. Technical change was modeled as a shift in marketing input supply. This approach yields equivalent results to a demand increase from biased technical change. Using an estimated elasticity of substitution of 0.1 and parameter values from previous studies, the results indicate cattle producers would receive either 57% or 72% of surplus gains depending upon whether input substitution occurs.