Input Demand Elasticities Research Articles

How vulnerable are small firms to energy price increases? Evidence from Mexico

AbstractThe vulnerability of small firms to price shocks may partly explain why fossil fuel subsidy removals in developing countries are so difficult to implement. This paper analyzes the effects of fuel and electricity price increases on profits of micro- and small-sized enterprises in Mexico. Using representative cross-sectional data, simulations of profit losses hint at potentially large short-term effects. First-order profit losses of a 1 per cent price increase are 0.2 per cent for fuels and 0.07 per cent for electricity, but are higher than 1 per cent for fuels in the transport sector. These effects are larger for formal than for informal firms, with energy-using low-profit firms being most vulnerable. Second-order impacts – predicted using estimated input-demand elasticities – indicate that firms react to price shocks by substituting labor for energy, while the self-employed appear to increase their own labor input. Reduced-form regressions show that some firms pass on higher fuel costs to customers.

Input Demand and Output Supply Elasticities of Coarse Cereals in India: A Translog Profit and Sure Approach

Aims: The aim was to estimate the output supply and input demand elasticities of maize, jowar and bajra production, using the restricted normalised translog profit function, for the major producing states of India (Andhra Pradesh, Maharashtra and Rajasthan). 
 Study Design: A stratified multi-stage random sampling design was adopted for carrying out the sampling.
 Place and Duration of Study: The study pertains to cross sectional plot level data for the period 2013-14 and 2017-18. The study is based on secondary data, collected from Directorate of Economics & Statistics, Ministry of Agriculture, Government of India. 
 Methodology: For the present studied crops (maize, jowar and bajra), those states were selected which covered maximum area, i.e, 85% of the total area under the cultivation. Socio-economic data of farmers such as age, sex, level of education, occupation, size of landholding were collected. The translog profit function approach was used as the econometric technique to estimate output supply, and input demand functions. Labour, fertiliser and seeds are taken as variable inputs. Statistical software STATA version 16 was used for the analysis.
 Results: The results suggest that the changes in market prices of inputs and output significantly affect the farmers’ profits, crop produce supply and the use of resources in the cultivation of these crops. The supply elasticities of maize, jowar and bajra with respect to its own prices are positive and statistically significant indicating that increase in support prices can boost the supply of these nutri-grains and farmers profits. Labour demand for these crops in the country is elastic and significant to its own price.
 Conclusion: During both the periods, 2013-14 (typical monsoon year) and 2017-18 (drought year), the elasticities derived are statistically robust as almost all of them carried compatible signs and in line with the theory. Promoting these crops can contribute to labour absorption.

Unconditional factor demands and supply response for livestock products: A farm-level analysis of the Southern Rangelands of Kenya

This paper evaluates output supply and input factor demands for livestock products in the Southern rangelands of Kenya. A flexible translog profit function that permits the application of the primal approach to the output supply and factor demand analysis was estimated using household-level data. The results indicate that the own-price elasticities of supply for cattle, sheep and goats were all positive. The own-price elasticities for the supply of sheep and goat products were elastic, while the own-price elasticities for the supply of cattle products wasinelastic. Cross-price and scale elasticities were found to be within the inelastic range in all cases, with goat production complementing both cattle and sheep production. All factor input demand elasticities for cattle, sheep and goats had the expected negative sign and were inelastic. These results offer a valuable opportunity for the development of pro-pastoral price policies that reduce factor market imperfections and thus enhance livestock productivity in the rangelands of Kenya.

Farmer Behavior Under Groundwater Management Scenarios: Implications for Groundwater Conservation in the Mississippi Alluvial Plain

Concern about sustained availability of fresh groundwater for agricultural use in the Mississippi Alluvial Plain (MAP) mounts as groundwater levels decline. We evaluate the elasticities of demand for groundwater and other agricultural inputs, as well as the overall and output-specific economies of scale for four major irrigated commodities (rice, corn, soybeans, and cotton) in the MAP region. Additionally, we investigate the impacts of two groundwater management policy scenarios, including increasing pumping cost and groundwater use restrictions, on irrigation behavior. The results show price elasticity of demand for groundwater to be [Formula: see text], indicating that it is inelastic, and an increased cost of pumping will not significantly decrease the relative demand for groundwater in the region. Even with policy scenarios that either increase the costs of pumping significantly or restrict groundwater use in the region, groundwater demand still appears to be inelastic. We also document significant overall economies of scale in the region. Our findings have implications for potential policy options aimed at reducing groundwater use. Efficient management practices are important to increase aquifer recharge, and considering human behavior via economic analysis will improve projections of groundwater availability in the MAP region.

THE EFFECTS OF BIOTECHNOLOGY ON PRODUCTIVITY AND INPUT DEMANDS IN U.S. AGRICULTURE

AbstractU.S. agriculture has seen a rapid adoption of biotechnology over the last two decades. This study investigates how biotechnology has affected U.S. farm input demand and agricultural productivity. The analysis relies on data at the national level and at the state level for selected states in the Corn Belt. It evaluates the rate of technological change and price elasticities of demand for agricultural inputs over time. The study documents the evolving biases in technological change in agriculture. It finds evidence that farm input demands have become more price inelastic.

PMP and Uniqueness of Calibrating Solution: A Revision

This paper demonstrates the existence of a unique solution of the PMP problem when both observed output quantities and limiting input prices are taken as calibrating benchmarks. This version of PMP avoids the use of a user-determined small positive number e originally introduced for guaranteeing that the dual (shadow) price of binding input constraints be positive. Furthermore, the paper shows how to obtain endogenous output supply and input demand elasticities that match available information about them in the form of previously estimated parameters for an entire region or sector. The framework is applied to a sample of farms also for the case that admits no production for some of the crop activities. The calibrating solution is very close to the observed values of output quantities and input prices. The calibrating model does not use the matrix of fixed technical coefficient and reproduces identical calibrating solutions.

Rice production structures in Sri Lanka: The normalized translog profit function approach

This study attempts to estimate the output supply and input demand elasticities of rice production using the restricted normalized translog profit function for the four major paddy producing districts; Anuradhapura, Hambantota, Kurunegala and Polonnaruwa in Sri Lanka. In addition, elasticities of substitution between inputs are also estimated. The results suggest that the changes in market prices of inputs and output significantly affect the farmers` profits, rice supply and the use of resources in paddy cultivation. The supply elasticity of rice with respect to its own price is 0.5 and the supply elasticity of output with respect to fertilizer price is -0.05 on an average. Fertilizer demand in the country is inelastic but significant to its own price. Therefore, fertilizer subsidy is one of the main factors to increase fertilizer demand as well as paddy supply in the country. In addition, the low elasticity of substitution between labour and fertilizer and other inputs indicates that there is a complementary relationship among these inputs hence their combined application increases paddy production synergistically. Overall, this study suggest that farmers are price sensitive and assures prevalence of higher output price is essential for higher rice production.

PMP and Uniqueness of Calibrating Solution: Output Supply and Input Demand Elasticities: Small Farms

PMP and Uniqueness of Calibrating Solution: Output Supply and Input Demand Elasticities: Small Farms

Prolonged Culture Period on Production Cost and Factor Input: A Case from the Pacific Oyster, Crassostrea gigas , Farming Industry in Yunlin County, Taiwan

The Yunlin coastal area is the largest oyster culture in Taiwan; however, the oyster farmers reported the negative impact of a prolonged oyster culture period and an increased operating cost in 2010. This study uses the translog cost function to consider the possibility of an oyster culture period extension to estimate oyster cost elasticity, own-price elasticities, and cross-price (substitution) elasticities, to evaluate whether the oyster farming industry in Yunlin County has economies of scale, and to assess the relationship with a substitution of inputs. We found that the Yunlin oyster culture has economies of scale, and that the oyster farmers can expand production scale to reduce costs. The own-price elasticities of demand for inputs are less than 1, indicating fairly inelastic factor demands in oyster production. The oyster farming industry displays strong substitutability between the prolonged culture period and capital input, suggesting that the oyster farming industry is more responsive to a higher prolonged culture period cost, in terms of capital input.

The Effect of Increased Energy Prices on Agriculture: A Differential Supply Approach

The increase in energy prices between 2004 and 2007 has several potential consequences for aggregate agriculture in the U.S. We estimate the derived input demand elasticities for energy as well as capital, labor, and materials using the differential supply formulation. Given that the derived input demand for energy is inelastic, it is more price-responsive than the other inputs. The results also indicate that the U.S. aggregate agricultural supply function is responsive to energy prices.

Factor Demand and Price Sensitivity of Forest-Based Biomass in the European Energy and Forest Sectors

Abstract An increasing utilization of biomass is, in the short-term, one of the most realistic alternatives to meet the energy and the environmental goals established by the European Union. As a result, the demand for forest-based products from European forests will increase. However, glaringly little research effort has been made towards analyzing the price effect resulting from the increasing demand for forest-based biomass and how the relevant industry sectors adjust their input demands due to these price changes. The purpose of this paper is thus to provide a disaggregated and detailed empirical estimation and analysis of the various input demand elasticities, as well as of the relevant substitution elasticities. The model is estimated using a panel of 23 European countries for the period between 1999 and 2005, thus allowing for specific country effects. The results indicate that the energy sector is relatively more price sensitive in its input demand for fossil fuels compared to the fibrous fuel categories. Thus, higher fibrous input prices will have a relatively small effect on the quantity of fibrous inputs that the energy sector demands. The forest industry is comparatively more price sensitive in its procurement of fibrous inputs than the energy sector, and will therefore reduce its input demand relatively more as a consequence from a fibrous input price increase. Furthermore, the cross-price elasticities reveal some interesting findings. In general, the energy sector will increase its utilization of fossil fuels as a result of increasing fibrous input price. Conversely, the energy sector will increase the utilization of fibrous input relatively less as a consequence of increasing fossil fuel prices.

Production and costs in the South African motor vehicle industry

This study investigates the existence of economies of scale in the South African motor vehicle industry as well as the substitution possibilities between input pairs and the direct and cross-price elasticities of demand for the various inputs. Because of data limitations, a translog cost function was estimated for only a three input model corresponding to a homogeneous production function involving capital, labour and intermediate goods. The issue of the existence of economies of scale in the South African motor vehicle industry is a particularly important one because South Africa once again is a member of GATT and a full participant in the international trade arena. The null hypothesis of constant returns to scale was rejected at the 0.5% level of significance. Thus, the results of this model are certainly consistent with economies of scale in the South African motor vehicle industry. The estimated direct price elasticities were consistent with the hypothesis that, during the past two decades, capital was the productive factor with the most elastic demand, and the estimated cross-elasticities between input pairs generally supported the hypothesis that all inputs are substitutes.

Estimating Supply Elasticity for Disaggregated Paper Products: A Primal Approach

Abstract Most existing elasticity estimates for the pulp and paper industry are based on aggregate products (e.g., total paper, paperboard, or paper except newsprint). Using United States data, we present and evaluate econometric output supply models for four relatively disaggregated paper products: newsprint paper (NP), printing/writing paper (PWP), tissue paper (TP), and packaging paper (PP). Sample periods vary from 14 years for PP (1987–2001) to 20 years for NP and PWP (1981–2001). Each paper type is specified using a two-stage least squares geometric distributed lag model in log–log form using monthly data. Estimated long-run (short-run) output price elasticities are 2.75 (0.69) for NP, 2.45 (1.07) for PWP, 1.77 (1.77) for TP, and 0.41 (0.24) for PP. Input demand elasticities for capital, wood fiber, labor, electricity, and wastepaper are also estimated for each paper type. FOR. SCI. 51(6):570–577.

An analysis of marketed surplus response of cereals in Haryana State of India

AbstractThis report uses a model that considers the effect of both factor and output prices on marketed surplus. To derive input demand and output supply elasticities, the normalized quadratic profit function and demand equations were estimated jointly with the seemingly unrelated regressions (SUR) estimation technique using farm level panel data. The data confirm the theoretical framework. The derived price elasticities of input demand, output supply, and marketed surplus have been simulated to examine alternative price policies for securing different levels of marketed surplus. At the observed price structure, the marketed surplus of wheat will increase almost equal to population growth, but in case of paddy it will grow at a very low rate. The study further reveals that besides price adjustment, technological improvement and non‐price factors are also of critical importance for increasing output supply and, hence, marketed surplus. [EconLit citations: Q120, C330.] © 2004 Wiley Periodicals, Inc. Agribusiness 20: 253–268, 2004.

The effects of the pollution cost internalization on Taiwan's hog industry

Duality theory is utilized to develop a translog profit function (TPF) which includes one output (hog), three variable inputs (labour, fodder, and piglet), four fixed inputs (capital, farm size, location, and pollution cost). Based on the trade theory for small country, the factors of corn and soybean imports are introduced into the TPF model to examine the effects of pollution cost internalization on Taiwan's hog supply, input demand, and cereal imports, respectively. Through the analysis of output supply and input demand elasticities, the empirical results show that hog supply decreases 1.60%. The demands for labour, fodder, and piglets decrease 4.18%, 1.44%, and 1.3Percnt;, respectively. The decrease in fodder demanded leads the importation of corn and soybean to decrease 1.58% and 1.43%, respectively.

The Spanish automotive industry: scale economies and input relationships

This paper investigates the existence of economies of scale in the Spanish automobile industry as well as the substitution possibilities between input pairs and the direct and cross price elasticities of demand for the various inputs by estimating a translog cost function for both a three input model involving capital, labour, and intermediate goods as well as a four input model where energy is separated from other intermediate goods. The results of this study are consistent with the hypothesis of economies of scale in the Spanish automobile industry, particularly at the low and mean levels of output. These results also are consistent with the hypothesis that capital is a substitute for the other inputs, but that labour and intermediate goods are complements. Labour and energy also appear to have a complementary relationship over most of the data points in this study. The significance of a complementary relationship between labour and intermediate goods is that any attempt by the Spanish government to restrict imports of these inputs, resulting in higher domestic prices for them, may aggravate an already serious domestic unemployment problem.

Estimates of Farm Output Supply and Input Demand Elasticities: The Translog Profit Function Approach

The importance of estimating valid elasticities of farm output supply and input demand can hardly be overemphasised. Reliable estimates of these elasticities are sine qua non for predicting accurately the farmer responsiveness to changes in inputoutput prices and government taxes and thereby for formulating successful agricultural incentive programmes consistent with national requirements of food, development and exports. In fact, robust estimates of the coefficients of such elasticities can serve as a solid basis in determining effective policy relevant interventions for promoting production, equity, efficiency, and finally egalitarian income distribution in the farm sector ofthe economy.

Biases of Technical Change in South African Agriculture: A Cost Function Approach

This paper exploits the properties of the third order approximation of the translog cost function which allows nested tests regarding the nature of technical change and specifically a direct test for price-induced technical change. Using data from 1949 to 1990 the input demand elasticities and factor saving biases were estimated for South African agriculture. Large machinery-using biases of technical change were evident with no labour-using biases. This, together with substitutability between machinery and labour, has-not contributed to alleviating the unemployment problem currently faced in South Africa. The hypothesis of no price induced bias was rejected suggesting that changing pricing policies may be a consideration for alleviating the current technology biases in South African agriculture.

Scale properties and input substitution in mexican electrical equipment manufacturing

This paper investigates the existence of scale economies in the Mexican electrical equipment industry and estimates direct and cross price input demand elasticities using a translog cost function. Although the estimated value of the cost elasticity was consistent with economies of scale, it was significantly less than 1 only at a significance level slightly greater than 5 percent. The estimated cross price elasticities indicated that all of the inputs were substitutes. Nevertheless, while lower trade barriers under the North American Free Trade Agreement, ceteris paribus, may have a short-term adverse effect on the demand for labor in this industry by increasing imports of cheaper capital and intermediate goods, the relatively low values for ELK and ELM also support the conclusion that the impact on employment may be relatively small.

Testing The Induced Innovation Hypothesis: An Application to UK Agriculture, 1953–90

This paper exploits the properties of the third order approximation of the translog cosl function lo estimate the input demand elasticities and factor-saving biases of technological change for UK agriculture. Then, cointegration techniques are used to determine the time series properties of the variables, eslablish cointegration and test for causality. The tests show that the single bias, single relative price approach, applied to the cumulative biases in previous tests, is inappropriate. Maximum likelihood techniuues show that cointegrating vectors exist and that the input prices are negatively related to the biases, as required by the hypothesis. The prices are causally prior to the biases, but for crop inputs there is also reverse causality.