Factor Demand Functions Research Articles

Carbon Substitution Effect Through the Utilization of Wood Products in Major Carbon-intensive Industries: Focusing on the Construction Industry in Korea

This study aims to examine the carbon substitution effect in Korea's major carbon-intensive industry, the construction industry. To accomplish this, we estimate the factor demand functions for the building construction and maintenance industry as well as the civil construction industry using the SUR model. Subsequently, we conduct a simulation analysis to assess the carbon substitution effect resulting from the replacement of wood with other factor inputs in each industry. The data utilized in this study are gathered from the Bank of Korea's Input-Output table and the Bank of Korea's producer price index. The estimated results of the factor demand functions reveal a substitutive relationship between wood and wood products with processed metal products within the construction industry. The simulation analysis indicates that an 8.75% increase in demand for wood and wood products within the construction industry can lead to the most significant reduction in total greenhouse gas (GHG) emissions for the industry, amounting to 277.52 thousand tons. This study is the first to quantify carbon substitution effects from an economic perspective, thereby contributing to providing insights for governments in formulating policies related to carbon neutrality.

Seasonal variation in hybrid seed adoption: The case of chilli in Indonesia

Chilli is one of important vegetables in Indonesia, which is produced all year long despite the seasonal variation. While seasonality in consumer demand and producer supply of agricultural commodities is well understood, relatively little is known regarding seasonal variation in adoption of farm technologies, such as hybrid seeds, whose effectiveness may vary across seasons. Hybrid seed adoption studies in developing countries tend to suffer from a problem of temporal aggregation where data is either (1) measured in a snapshot of time, in which case seasonal variation cannot be analysed, or; (2) aggregated over a year or multiple years, where cyclical seasonal variation is washed out. This study uncovers seasonal dynamics in hybrid seed demand by analysing the case of chilli in hybrid seed use by farmers will be critical for improving seed-system. Factor demand functions were estimated using a unique dataset of 597 chilli producers. The study tested for structural change in demand for hybrid seeds going from dry season to wet season and identify season-specific constraints to hybrid seed use. Results showed that hybrid seed adoption is likely associated with water supply, especially during dry seasons. The adoption of hybrid seed could be lower in irrigated land during the rainy season.

Theory of the Firm: A Reformulation with Primary Factors of Production and Procurement of Ingredient Inputs

Abstract. This paper reformulates the neoclassical theory of the firm by distinguishing two types of inputs: (1) the primary factors of production (labor, capital, etc.) and (2) ingredient inputs (intermediate goods, raw materials, and services). The production function is defined on the space of the primary factors while ingredient inputs, as required by production technologies, are procured externally from other firms. Firms maximize profits subject to the production function as well as to the ingredient input requirement functions. We analyze how the optimal level of production and the optimal employment of factor services are determined when the cost of the acquisition of ingredient inputs is counted explicitly as part of the total cost of production. The first order condition of profit maximization requires that the marginal value-added product of an employed primary factor be equal to its price, and the second order condition is stated in terms of the negative definiteness of the Hessian of the value-added function. Cost minimization requires that the marginal cost of production be equal to the sum of an incremental cost of factor services and an incremental cost of ingredient inputs that are procured. The optimum level of production and the optimal use of the primary factors both respond to changes in the prices of ingredient inputs. The paper also shows: the zero degree homogeneity of factor demand and output supply functions, the linear homogeneity of the value-added function, Shephard’s lemma, the interpretation of the Lagrangian multiplier in cost minimization, the nonlinearity of the iso-cost surfaces, and the concavity of the cost function. Keywords. Primary factors, Ingredient inputs, Production function, Value-added function, Marginal value-added product. JEL. D01, D21, D24.

Clarifying Theoretical Intricacies through the Use of Conceptual Visualization: Case of Production Theory in Advanced Microeconomics

Production theory, defined as the study of the economic process of transforming inputs into outputs, consists of two simultaneous economic forces: cost minimization and profit maximization. The cost minimization problem involves deriving conditional factor demand functions and the cost function. The profit maximization problem involves deriving the output supply function, the profit function, and unconditional factor demand functions. Nested within the process are Shephard's lemma, Hotelling's lemmas, direct and indirect mathematical relations, and other elements contributing to the dynamics of the process. The intricacies and hidden underlying influences pose difficulties in presenting the material for an instructor, and inhibit learning by students. Simply put, the primary aim of this paper is to facilitate the teaching and learning of the production theory realm of Economics through the use of a conceptual visual model. This paper proposes a pedagogical tool in the form of a detailed graphic illustrating t he relationship between profit maximization and cost minimization under technical constraints, with an emphasis on the similarities and differences between the perfect competition and monopoly cases. The potential that such a visual has to enhance learning when supplementing traditional context is discussed under the context of contemporary learning literature. Embedded in the discussion is an example of how we believe our model could be conceptualized and utilized in a real-world setting to evaluate an industrial project with an economic point of view.

Capital deepening, land use policy, and self-sufficiency in China's grain sector

The objectives of this paper are twofold. First, we aim to clarify the mechanism by which use of farm machinery in Chinese agriculture has grown rapidly over the past decades, using a separate Cobb–Douglas (SCD) production function. Second, we determine under what condition will China's grain self-sufficiency be secured in the next decade. Our empirical results reveal that the supply and factor demand functions based on the SCD form can significantly explain the reality, in particular, the capital demand function. This finding suggests that the recent capital deepening in Chinese agriculture is caused by farmers' behavior in response to the government's directives aimed at securing arable land. Our simulation analysis reveals that the attainment of a 95% self-sufficiency rate would be quite challenging for China, unless the terms of trade in agriculture improve substantially in favor of producers. China's policy makers must therefore seriously reconsider whether adhering to the policy goal of grain self-sufficiency is worth the effort.

A Dual Approach to Estimation with Constant Prices

In a recent paper, Mundlak assumes that the price-taking, risk-neutral and profit maximizing entrepreneur makes his decisions on the basis of a planning model that maximizes expected profit using expected prices. In the same paper, the author asserts that when there is no sample price variation across competitive firms, it is impossible to estimate the supply and factor demand functions from cross-section data using a dual approach. In a famous paper, titled “To Dual or not to Dual,” Pope asserted a similar opinion. This paper shows that, using Mundlak’s assumption about planning decisions based upon expected profit, it is possible to use a dual estimator to estimate supply and factor demand functions. This objective is achieved by using Mundlak’s assumption about the individuality of the firm’s expectation process. A two-phase procedure is suggested to obtain consistent estimates of the expected quantities and prices which are then used, in phase II, in a nonlinear seemingly unrelated equations problem to obtain efficient estimates of the technological parameters.

International outsourcing and the demand for skills

This paper explores the impact of international outsourcing on the demand for skills in three small and open EU economies. A model of variable costs and factor demand functions for different skill levels and imported as well as domestic materials are constructed. International outsourcing is treated directly as a substitution process between labour of different skills and imported inputs. The direct consequence of international outsourcing for labour is measured by the cross price elasticities. These cross price elasticities indicate a negative outsourcing impact on low- and medium-skilled labour in the three countries and on high-skilled labour in two out of the three countries. This outsourcing effect on labour is compared with the direct effect of embodied technical change and of the technical change bias. International outsourcing has a more unambigous and significant negative impact on labour than technical change. Technical change is either labour using (embodied technical change) or only slightly biased in favour of high-skilled labour. When the cost savings effect of international outsourcing is taken into account, an indirect positive stimulus for all skill categories arises from a greater demand for goods. It can be shown, that this indirect positive effect can compensate for a large part of the negative substitution impact of international outsourcing on labour.

Perspectives on nonparametric and Semiparametric Modeling

Nonparametric regression techniques hold out the promise of more flexible modeling of data in many areas of physical, biological and social sciences. However, their use is hampered by the Ocurse of dimensionalityO which imposes enormous data requirements as the number of explanatory variables increases. After summarizing two of the most commonly used methods for mitigating the OcurseO, this paper outlines a new approach which exploits data on derivatives. In economics, such circumstances arise in the joint estimation of cost and factor demand functions, or when production function data are combined with data on factor prices. The ideas are illustrated using empirical examples from energy economics.

A Partial Equilibrium Approach of Modeling Vertical Linkages in the U.S. Flat Rolled Steel Market

This paper models linkages between upstream and downstream goods in the U.S. market for flat-rolled steel. These vertical linkages are important to account for when estimating the impact of trade restrictions on imports of flat rolled steel because some types of flat rolled steel are predominately used to produce other types of flat rolled steel and in some cases also make up a large share of their production costs. Previous research has modeled the linkages between upstream and downstream goods with CGE models and vertically linked partial equilibrium models. Drawing upon this literature, this paper builds a vertically linked version of the CES COMPAS model that incorporates vertical linkages as constant cross price elasticities in both downstream supply functions and upstream factor demand functions. Compared to estimates from the CES COMPAS without vertical linkages, introduction of a trade restriction increases demand for upstream goods and decreases supply of downstream goods, increasing prices of both upstream and downstream goods, while increasing shipments of upstream goods and decreasing shipments of downstream goods. In estimating the impact of the safeguard measures imposed on the flat rolled steel market, accounting for the vertical linkages is most important when estimating the impact on domestically produced slab since all downstream products produced from slab were subject to the safeguard tariffs.

Prices and factor demand in an endogenized input–output model

This paper combines factor demand functions (for intermediate input and labour) and price equations (derived from a Generalized Leontief cost function) with the traditional input–output price model. The cost functions determine factor demands for materials and labour as well as output prices at given input prices. At the second level of aggregation, the intermediate demand as a single input is split proportional to the elements in the column of the technical coefficients matrix. The emphasis in this endogenization of technical coefficients is on two features. First, the repercussion of output on input prices, and, second, the link between the econometric model for the supply side and the input–output demand model.

Employment dynamics in Indian industry: adjustment lags and the impact of job security regulations

The mismatch in output and employment growth phases witnessed by Indian industry in the 1960s and 1970s and the puzzle of jobless growth during the 1980s drew attention to the possible adverse impact of the Industrial Disputes (Amendment) Acts of 1976 and 1982. The Government of India recently mooted a proposal to relax the provisions of the Acts to enhance the flexibility of the labour market. We investigate the extent of impact of job security legislation through an analysis of dynamic inter-related factor demand functions. Our findings provide evidence of significant lags in employment adjustment. We find evidence, however, that these existed even in the period preceding the formal introduction of job security legislation, and that the impact of job security regulations, contrary to popular perception, was minimal.

Paper or plastic? The United States’ demand for paper and paperboard in packaging

Analysis of consumer demand for packaging suggests that: plastic packaging is a luxury good, while paper packaging is a normal good, paper packaging demand increases with the price of plastic packaging, and that demand for paper packaging is most sensitive to its own price, and to the income of consumers. In a complementary analysis of input demand in the converting paper industry it was found that the demand for each paper grade is price inelastic, capital and other materials are substitutes for paper, while labor is a complement, technical change rapidly decreases the use of unbleached kraft packaging and industrial converting, and increases the use of other grades. The demand for each paper grade, derived from the consumer demand and the factor demand functions, showed that, from 1983 to 1991, the demand for paper in packaging was influenced mainly by consumer income, and by the price of paper packaging, and less so by the price of paper itself, or by the price of plastic packaging.

Trade liberalization and productivity growth: new evidence from the Turkish rubber industry

This paper empirically examines the effects of a change in foreign trade regime on productivity growth. Based on a Generalized Leontief factor demand function system, total factor productivity growth (TFPG) rates are calculated for the Turkish rubber industry during a substantial trade liberalization in the 1980s: TFPG was significantly higher following trade liberalization. Technological change was the major contributor to this growth. When a panel data estimation technique is used to explain technological change, the effects of trade liberalization become clearer: a one percentage point increase in the protection level led to more than a one percentage point (1.27) decline in the technological change rate.

THE STRUCTURE OF METROPOLITAN FACTOR AND PRODUCT MARKETS*

ABSTRACT. In this study we use a translog profit function and iterate seemingly unrelated regressions to estimate a system of factor demand and output supply functions for metropolitan economies. Our sample includes all metropolitan areas defined by the Census in 1977 for the period 1962 to 1982. Estimation shows that all price elasticities are elastic and that the signs are as expected. These results hold true for virtually all model specifications. Our findings indicate that federal, state, and local tax policies have significant impacts on factor demand and output supply. Public investment plays a positive and significant, but small, role in increasing output and in complementing other factors, although this influence has declined over time. Additionally, capital provided by the private sector has a substantially larger impact on output and employment than does capital provided by the public sector.

Firm behavior under input rationing

Abstract This paper uses the concept of virtual prices to evaluate the impact of an input quantity constraint, such as a ration or quantity control, upon the competitive multiproduct profit-maximizing firm's factor demand, output supply, multiproduct cost and revenue structures, marginal implicit valuations of fixed factors, and capacity utilization. The properties of the input-rationed and unrationed output supply and factor demand functions, costs, and capacity utilization are related, consistently describing behavior under both regimes. Both Hicksian and Marshallian functions are assessed. The potential effects of input rationing upon wet rice production and labor utilization in the islands of Indonesia off-Java serves as a case study.

On the simultaneity of innovations and market structure

This paper examines the determinants of innovations and market structure within a simultaneous framework. From a competitive fringe model, quasi-conditional factor demand functions are derived that explain product and process innovations in terms of factor prices and market structure variables such as relative firm size, market size, and the concentration ratio where the latter set of variables result from the same optimizing process. Empirical evidence is gained from a cross section of 2276 West German firms in the manufacturing sector. In contrast to many other empirical studies, product and process innovations are measured by two dichotomous variables. An exogeneity test for the probit model is worked out and the conditional maximum likelihood estimator that emerges from this test is applied. The results show that simultaneity does matter, even if innovations are explained by market structure variables at the firm level. Accounting for endogeneity and cross-equation restrictions changes the results substantially.

The positive theory of production externalities under perfect competition

Aggregate cost and factor demand functions are used to develop a local envelope function which is applied in a general equilibrium model with production externalities to shed new light on the relationship between the true economy marginal costs and outputs. This relationship induces a structure to the relationship between actual prices and outputs by means of the assumption of no factor demand reversals associated with externality effects. We also provide generalisations of the Stolper–Samuelson and Rybczynski theorems highlighting the role of the externality effects.

Profit, Supply, and Factor Demand Functions: Comment

American Journal of Agricultural EconomicsVolume 72, Issue 2 p. 488-492 Comments and Replie Profit, Supply, and Factor Demand Functions: Comment John R. Conlon, John R. Conlon assistant professor Department of Economics and Finance University of MississippiSearch for more papers by this author John R. Conlon, John R. Conlon assistant professor Department of Economics and Finance University of MississippiSearch for more papers by this author First published: 01 May 1990 https://doi.org/10.2307/1242352Citations: 2AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat Citing Literature Volume72, Issue2May 1990Pages 488-492 RelatedInformation

Agricultural Production Technologies with Systematic and Stochastic Technical Change

AbstractA production system modeling tool is developed that implements recent work on autoregressive and endogenous stochastic production technologies associated with generalized Fechner‐Thurstone (GFT) optimizing functions. A GFT‐class production system is used to evaluate the empirical support for technology specifications inherent in the neoclassical theoretic structure of an agricultural production region. Little likelihood support is found for zero serial correlation, elimination of systematic technology changers from the production system, strict neoclassical production technologies, Hicks‐neutral technical change, or zero homogenous factor demand functions.

FACTOR DEMAND IN PAKISTAN'S MANUFACTURING SECTOR

This paper estimate factor demand function by choosing appropriate technology. Departing from the conventioanl parting from the conventional practice of using and capital as factor inputs we extend the list of factors of production by including energy. Since we have more than two factor inputs the two-level (nested) CES production function is the natural choice for the appropriate technology. Using this technology we derive the factor demand for functions and estimate these for Pakistan's manufactruing sector covering a period from 1959-60 to 1982-83. The output elasticity of labour, capital and energy are found to be 0.47, 0.66 respectively. These informations, in particular, the employment elasticity are extremely important for manpower planning. These findings confirm the capital intensive structure of Pakistan's manufacturing units. [200]