Abstract
N ERLOVE'S reformation of Cagan's adaptive price expectations model has become a standard tool in the estimation of agricultural supply functions.1 In this paper we propose a modified version of Nerlove's model which in addition to past prices takes into account observed deviations of yield from its normal value. We show that under certain assumptions our model has the desirable property of rationality as defined by Muth. In the first section Muth's concept of rationality and the conditions under which Nerlove's adaptive expectations model is rational are briefly discussed. This is followed by a more general model of which both Nerlove's and this paper's models are special cases.
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