Applied Production Analysis Research Articles

Model development for wheat production: Outliers and multicollinearity<br>problem in Cobb-Douglas production function

Despite the important role that production function has played in growth literature, few attempts have been made to change the methodology to estimate it. The Cobb-Douglas functions are among the best known production functions utilized in applied production analysis. This paper describes development of a new model based on Cobb-Douglas production function with the used of robust method and partial least squares path modeling for parameter estimation. The new model attempted to solve two main problems in modeling namely the issue of multicollinearity and outliers. Each issue was handled separately but using the same method of least square for parameter estimations. This paper goes on to provide an overview of the measurements and structural criteria needed for model development and, also to introduce a robust partial least squares-path modeling for the Cobb-Douglas production function (RPLS-PM-CD). The researcher hypothesizes that utilization of the minimum covariance determinant (MCD) provides an estimate by the measurement model and expresses the structural relationships between the latent variables through the partial least squares-path modeling (PLS-PM). The inputs and outputs of the RPLS-PM-CD were based on agricultural wheat production data pertaining to AlKufra Agricultural Production Project. This paper is more theoretical and should be seen as a new way to estimate Cobb-Douglas production function.

Modeling Energy and Non-Energy Substitution - A Survey of Elasticities

Estimating the degree of substitution between energy and non-energy inputs is key for any evaluation of environmental and energy policies. Yet, given the large variety of substitution elasticities, the central question arises as to which measure would be most appropriate. Apparently, ALLEN’s elasticities of substitution have been the most-used measures in applied production analysis. In line with Frondel (2004), this paper argues that cross-price elasticities are preferable for many practical purposes. This conclusion is based on a survey of classical substitution measures, such as those from ALLEN, MORISHIMA, and MCFADDEN. The survey also highlights the fact that cross-price elasticities are their essential ingredients.

Modelling energy and non-energy substitution: A brief survey of elasticities

Estimating the degree of substitution between energy and non-energy inputs is the key for any evaluation of environmental and energy policies. Yet, given the variety of substitution elasticities, the central question arises as to which measure would be most appropriate. Apparently, Allen's elasticities of substitution have been the most-used measures in applied production analysis. In line with Frondel (2004), this paper argues that cross-price elasticities are preferable for many practical purposes. This conclusion is based on a survey of classical substitution measures, such as those from Allen, Morishima, and McFadden. The survey highlights the fact that cross-price elasticities are their essential ingredients.

Applied production analysis unveiled in open peer review: introductory remarks

This special issue of the Journal of Productivity Analysis is the outcome of a unique modeling session organized at the 9th European Workshop on Efficiency and Productivity Measurement (EWEPA9) between June 29 and July 2, 2005 in Brussels (see http://www.ewepa.org). The overall goals of this special issue are twofold. First, this issue seeks to illuminate the ‘‘context of discovery’’ in applied production analysis in the sense of identifying the forces motivating the actual choices of applied economists as they undertake their empirical research. Since economic knowledge is uncertain and the process of knowledge creation is highly speculative, we want to showcase how a set of scholars undertake the critical examination of a common problem, select what they perceive to be the proper models to analyze the data, and then make some final judgments and formulate some policy conclusions in an imperfect world. Second, this venture provides a means to transfer academic expertise from seasoned scholars to emerging scholars (graduates, Ph.D. students, young researchers, etc.) by observing scholars engage in problem solving. Observing social scientists in action is hardly ever informative, since social sciences researchers normally do not share a common life in a laboratory (except when collecting experimental data—still a rather exceptional data collection method in economics). It is indeed less obvious how young researchers receive informal training in their respective social science disciplines in addition to their formal training (e.g., their participation in Ph.D. programs). Being able to witness (not by direct observation, but indirectly reviewing the written record) how established scholars go about tackling a problem can prove valuable for Ph.D. students and young researchers. Of course, this does not amount to denying that some close substitutes for our project do exist. For instance, there are some excellent econometrics textbooks with many hands-on exercises (e.g., Berndt 1991; Greene 2003). But, these books focus on duplicating streamlined (often published) results, not on how these results actually emerged in the first place. As yet another possibility, one could simply ask successful researchers about their methodologies and underlying motivations when they introduced major new theories. This may partly explain the existence of a growing number of books with collections of interviews with eminent economists. Some of these interview books are rather general in nature (e.g., Szenberg 1992 or Samuelson and Barnett 2006), other books focus on particular topics (e.g., Klamer (1984) focuses on the then hot debate on the new classical macroeconomics, Swedberg (1992) sheds light on the boundary between economics and sociology) or contribute to the intellectual history of the field (e.g., Colander and Landreth (1996) explore the introduction of Keynesian ideas in US academic life). However, these books tend to focus on eminent scientists only. While everybody can no doubt benefit from understanding how S. E. Stefanou (&) Department of Agricultural Economics and Rural Sociology, Pennsylvania State University, Armsby Building, University Park, PA 16802, USA e-mail: spiros@psu.edu

04/02374 Life cycle energy and environmental benefits of generating electricity from willow biomass: Heller, M. C. et al. Renewable Energy, 2004, 29, (7), 1023–1042

Evaluations of energy-price policies are necessarily based on measures of the substitution of energy and non-energy inputs. Facing a variety of substitution elasticities, the central question arises which measure would be appropriate. Apparently, for a long time, this question has not been at issue: Allen's elasticities of substitution (AES) have been the most-used measures in applied production analysis. This paper's main contribution is an instructive survey of the origin of substitution measures and of the trinity of empirical substitution elasticities—AES, cross-price elasticities, and the Morishima elasticities of substitution (MES)—with particular emphasis on their interpretations and the perspectives that will be captured by these measures. This survey clarifies why classical cross-price elasticities are to be preferred for many practical purposes. Berndt and Wood's (Rev. Econom. Stat. 57 (1975) 259) frequently applied data set of US manufacturing is used to illustrate why assessments of energy-price policies would be better based on cross-price elasticities like the energy-price elasticity of capital, rather than on AES or MES.

Empirical assessment of energy-price policies: the case for cross-price elasticities

Evaluations of energy-price policies are necessarily based on measures of the substitution of energy and non-energy inputs. Facing a variety of substitution elasticities, the central question arises which measure would be appropriate. Apparently, for a long time, this question has not been at issue: Allen's elasticities of substitution (AES) have been the most-used measures in applied production analysis. This paper's main contribution is an instructive survey of the origin of substitution measures and of the trinity of empirical substitution elasticities—AES, cross-price elasticities, and the Morishima elasticities of substitution (MES)—with particular emphasis on their interpretations and the perspectives that will be captured by these measures. This survey clarifies why classical cross-price elasticities are to be preferred for many practical purposes. Berndt and Wood's (Rev. Econom. Stat. 57 (1975) 259) frequently applied data set of US manufacturing is used to illustrate why assessments of energy-price policies would be better based on cross-price elasticities like the energy-price elasticity of capital, rather than on AES or MES.

Uncertainty, duality and perversity: an empirical test of the Schultz-Baron hypothesis

It has been suggested that supply curves may be negatively sloped under conditions of output price uncertainty and risk aversion if the effect of an increase in expected price is offset by the effect of an associated increase in uncertainty/risk. This hypothesis, first articulated by Schultz and given a more rigorous theoretical exposition by Baron, is tested using aggregate time series data to estimate a stochastic model of US agriculture based on a generalized Leontief certainty equivalent profit function. Evidence of risk aversion and a positive correlation between mean output price and its variance are found; however, these factors are not strong enough to generate perversity. Thus the own-price elasticity of supply of agricultural output is found to be positive with a value of 0.25. Although no evidence of perversity is found, the empirical results suggest that ignoring price uncertainty may bias estimates of aggregate supply response downwards by between 5% and 47%. As well as testing the Schultz - Baron hypothesis, the paper demonstrates how the dual approach to applied production analysis can be extended to cover production under output price uncertainty.

Comparing Fourier and translog specifications of multiproduct technology: Evidence from an incomplete panel of French farmers

Selecting a functional form for a cost or profit function in applied production analysis is a crucial step in assessing the characteristics of a technology. The present study highlights differences in the description of a technology which are induced by fitting a Fourier or a translog cost functions. On average, both forms provide similar information on the technology. However, estimation results and statistical tests tend to favour the Fourier specification. This is mainly because many trigonometric terms appear to be significant in our application. Accordingly, our results show that the Fourier cost function is able to represent a broader range of technological structures than the translog. The paper presents an application to the case of an incomplete panel of French farmers. In the process, three technical issues are addressed: the missing data problem, the choice of the order of approximation and the conditions ensuring asymptotic normality of Fourier parameters estimates.

An axiomatic framework of dynamic production

We model a production system as a collection of interrelated production activities that consume exogenous materials and services to produce final products. The primitive elements in our study describe time-varying aspects of production, including intermediate product transfers between activities, inventory and material balances, and capacities on service consumptions. Each activity's production process is governed by a dynamic production function that maps time-varying input consumptions into realized output. We establish a dynamic version of steady-state duality, and a law of return for bounded input rates of essential factors. We also use our theory to re-examine the use of steady-state duality theory in applied production analysis.

REVIEWS

Book reviewed in this article:Alexandra, N.(ed.) (1988). World Agriculture Towards 2000: An FAO StudyChambers, R. G. (1988). Applied Production Analysis: A Dual ApproachColman, D. and Young, T. (1989). Principles of Agricultural Economics: Markets and Prices in Less Developed CountriesCommon, M. (1988). Environmental and Resource Economics: An IntroductionHaney, W. G. and Knowles, J. B. (eds.) (1988). Women and Farming: Changing Roles, Changing StructuresGasson, R. (1988). The Economics of Part‐Time FarmingMarks, H. F., edited by Britton, D. K. (1989). A Hundred Years of British Food and Farming: A Statistical SurveyPinstrup‐Andersen, P. (ed.) (1988). Food Subsidies in Developing Countries: Costs, Benefits and Policy OptionsRaikes, P. (1988). Modernising Hunger: Famine, Food Surplus and Farm Policy in the EEC and AfricaSpahni, P. (1988). The Common Wine Policy and Price StabilizationStevens, R. D. and Jabara, C. L. (1988). Agricultural Development Principles: Economic Theory and Empirical EvidenceUsher, J. A. (1988). Legal Aspects of Agriculture in the European CommunitySpedding, C. R. W. (1988). An Introduction to Agricultural SystemsTracy, M. (1989). Government and Agriculture in Western Europe 1880–1988Harrison, A. with Tranter, R. B. (1989). The Changing Financial Structure of FarmingJones, D. (1989). Financial Vulnerability in Farming: A Study of North West FarmsOrganisation for Economic Co‐operation and Development (1989). Agricultural and Environmental Policies — Opportunities for IntegrationForeman, S. (1989). Loaves and Fishes: An Illustrated History of the Ministry of Agriculture, Fisheries and Food 1889–1989

A consistent, reflexive duality framework of production: An application of quasi-concave conjugacy theory

The duality theory of production, as pioneered by Hotelling, Shephard, Diewert, McFadden, and others, is essential to applied production analysis (for an excellent survey see Diewert, 1982, and McFadden, 1978). When confronting actual data, it is usually more convenient to examine the cost function (and its related concepts, the profit and indirect production functions) than the production function itself. For singleproduct firms, under appropriate conditions all economically relevant information about the purely technological relationships can be obtained by observing the optimizing behavior of economic agents and economic phenomena such as costs, input prices, and derived factor demands. While traditional analysis of the theory of the firm has concentrated on single-product firms, as argued in Bailey and Friedlander (1982) "most businesses produce many products, and many regulatory and antitrust issues involve only these enterprises." While the concepts of cost and cost functions still apply in the multiproduct setting (see Baumol, 1977, and Panzar and Willig, 1977),

Analyzing the Indirect Production Function for U. S. Manufacturing

In recent years there has been considerable research conducted in applied production economics to estimate the firm's structure of technology and its production characteristics. The main concept used in this research is the duality principle relating production and cost (or profit) together with the use of flexible-form econometric specifications for estimating production technologies. Under the assumption of cost minimization (or proft maximization), duality implies that for any production function, there exists a cost (or profit) function that provides an equivalent description of the technology. What is less well known, however, is that the firm's technology can be equally well described by the indirect production function, a production analog of the indirect utility function in consumer theory [5; 8; 9]. The indirect production function is based on the firm's output maximization subject to a budget constraint on input costs. Of course, it is evident enough that a firm choosing inputs to maximize output for a given input cost produces that output at the minimum cost. By implication, the indirect production and cost functions are equivalent ways of characterizing the firm's technology and, as will be seen, there exists a unique correspondence between the two functions. In empirical application, however, the choice between the two functions hinges on the exogeneity or endogeneity of output. For the indirect production function, the level of output is an endogenous variable. In the case of the cost function, on the other hand, output is exogenously given. In most situations, it is the indirect production function, not the cost function, that is more compatible with observed behavior of firms and industries. While numerous studies have been conducted recently to estimate the cost (or profit) function in a variety of firms and industries [1; 2; 3; 6], no attempts have been made to employ the indirect production function as a working tool in applied production analysis. This paper attempts to provide empirical evidence from analyzing the indirect production function within the context of an application of the duality principle. Using the well known data set utilized by Berndt and Wood [3] and Berndt and Khaled [2], it reexamines the production structure of U.S. manufacturing, based on a translog specification of the indirect production function for the underlying technology. An important question is how the choice of a model-the indirect production or cost function-