More specifically, SOFF and HAGL are initial state variables in the bargaining process and PS directly reflects the bargaining strength of the seller.
BBID = f(DMAN, RIV, WHEAT, LSIZE, LCCOST, SLOPE, HOUS, BAGE, BCHILD, BADDN) |15~ SOFF = f(DMAN, RIV, WHEAT, LSIZE, LCCOST, SLOPE, HOUS, SAGE, SCHILD, SFARM, PS) |16~
In turn, BBID and SOFF directly determine HAGL and, as noted above, the coefficient on HAGL is a measure of relative bargaining strength.
Model 4 requires acceptance of two assumptions: (a) the relationship between SOFF and SMIN (equation |25~) is fixed; and (b) the formation of the seller's offer price (SOFF), the buyer's bid price (BBID), and the final market price (PF) occurs simultaneously.
The coefficients on LCCOST in the SOFF and SMIN equations (equations |18~ and |23~), however, are larger, in absolute value, than those in the BMAX equations (equations |19~ and |22~), indicating that buyers may discount erosion status less heavily than sellers.
The coefficients on WHEAT in the BMAX and SMIN equations of Model 4, and in the BMAX and SOFF equations of Model 3, indicate that sellers value wheat production more highly than buyers.