Dynamic Corn Supply Functions: A Model with Explicit Optimization

Abstract

AbstractA model of optimal dynamic agricultural supply is derived and fitted assuming farmers have two annual stochastic crop production activities, a joint limitation on production capacity, interdependencies between past acreage utilization and current productivity, and rational expectations. A five‐equation specification is fitted to annual data, 1948–80. Estimated parameters are consistent with the theory, and the model simulates well. The long‐run price elasticity of corn acreage is 0.2, which is similar to those obtained from ad hoc dynamic models, but our short‐run elasticities are different.