Output Supply Elasticities Research Articles

Estimation of Elasticities of Milk Production in the Eastern Region of India: A Normalized Profit Function Approach

The study employed a normalized translog profit function approach to estimate the output supply and factor demand elasticities of milk production in the eastern region of India. The profit maximization hypothesis was rejected, and thus, the farmers in the region must be motivated to take up dairy farming on scientific lines to maximize their profits. Most of the cross-price elasticities of input demand were negative, revealing that the inputs were complements of each other. The elasticities revealed that when the milk price changes, the milk supply increase was lesser than the demand for inputs. The large negative elasticity of the labour wage rate urges dairy farmers to move towards mechanization and use IT techniques in dairy farming. Keywords: Elasticity, milk, normalized profit function, seemingly unrelated regression equations, translog. JEL Codes: A11, C01, C02, C39, Q21.

Futuristic projection of selected commodities in India

This study has estimated the factor demand and output supply elasticity’s for major food crops in India. The elasticity’s have provided insights on the responsiveness of output supply and factor demand to changes in product and factor prices. The estimates have been used to make supply projections of selected commodities to 2030.The study observes that Demand for rice and wheat will be met with their domestic production in the coming years, may be with a marginal Surplus/deficit under the scenarios of with or without total factor productivity growth. Total Pulses, would be short in supply of demand in the coming years.

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.

Productivity Growth in Dynamic Factor Adjustment for the Japanese Manufacturing Industry

ABSTRACT By utilising a dynamic adjustment-cost framework, this study analyses dynamic productivity growth in the Japanese manufacturing industry. Empirical results show that labour and capital are very slow in converging toward the long-run equilibrium, and that output supply and factor demand elasticities vary greatly, depending on the time horizon considered. The results also show that disequilibrium effects of quasi-fixed factors are positively biased toward productivity growth measured in a static equilibrium model. The bias results largely from negative adjustment costs related to the decreasing investment in the factors. There is an almost steady decrease in returns to scale, causing negative scale effects on productivity growth.

Dynamic factor demand in the Japanese manufacturing industry

PurposeThis study investigates the dynamic production structure of the Japanese manufacturing industry by using the adjustment cost approach. The study is to shed some light on the unique dynamic structure of the Japanese manufacturing industry. The study attempts to help design and predict industrial policies that are implemented to enhance domestic investments by the Japanese government.Design/methodology/approachThis study obtains a system of dynamic factor demand and output supply equations by applying the dual approach to the intertemporal value function as represented by the Hamilton–Jacobi equation. By using industrial panel data for 1973–2012 of the Japanese manufacturing industry, the study estimates the system of the behavioral equations and corresponding elasticities. The study uses hypothesis tests and dynamic elasticities to investigate the dynamic structure of the Japanese manufacturing industry.FindingsEstimation results show that labor and capital are quasi-fixed variables that adjust about 0.2 percent annually to the long-run optimum levels. Estimated adjustment rates are very slow as often presumed about the Japanese manufacturing industry, which uses lifetime employment practice and slow decision-making process in investment decisions. The results also show that output supply and factor demand elasticities vary greatly depending on time horizon. Factor demand increases when its own price increases in the short run, suggesting that factor adjustment is mostly determined factor prices in the past due to sluggish factor adjustment. However, factor demand becomes a normal downward-sloping curve in the long run as factor adjustment gets completed.Originality/valueJapanese manufacturing firms hire employees through lifetime contract to exploit the benefits of dynamic learning-by-doing and execute investments carefully considering all the possible impacts. Under the strategy, adjustment costs for changing workers and capital stock are minimized. Dynamic adjustment model is expected to shed some light on the unique dynamic structure of the Japanese manufacturing industry. However, researches regarding the dynamic factor adjustment of the Japanese manufacturing industry are hard to find. This study is expected to fill the research vacuum.

Positive mathematical programming and risk analysis.

In 1956, Freund introduced the analysis of agricultural price risk in a mathematical programming framework. His discussion admitted only constant absolute risk aversion. This paper generalizes the treatment of risk preference in a mathematical programming approach along the lines suggested by Meyer (1987) who demonstrated the equivalence of expected utility of wealth and a function of mean and standard deviation of wealth for a wide class of probability distributions that differ only by location and scale. This paper extends the definition of calibration under Positive Mathematical Programming (PMP) by considering limiting input prices along with the traditional decision variables. Furthermore, it shows how to formulate an analytical specification for the estimation of the risk preference parameters and calibrates the model to the base data within small deviations. The PMP approach under generalized risk allows also the estimation of output supply elasticities and the response analysis of decoupled farm subsidies that recently has interested policy makers. The approach is applied to a sample of farms that do not produce all the sample commodities.

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.

Positive Mathematical Programming with Generalized Risk: A Revision

In 1956, Freund introduced the analysis of price risk in a mathematical programming framework. This paper generalizes the treatment of price risk preferences in a mathematical programming framework along the lines suggested by Meyer (1987) who demonstrated the equivalence of expected utility and a wide class of probability distributions that differ only by location and scale. This paper shows how to formulate a Positive Mathematical Programming (PMP) specification that allows the estimation of the risk preference parameters and calibrates the model to the base data within admissible small deviations. The PMP approach under generalized risk allows also the estimation of output supply elasticities and the response analysis of decoupled farm subsidies that, recently, has interested policy makers. The approach is applied to a sample of large farms. Not all farms produce all commodities.

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.

The effects of price changes on oyster farmers in Changhua County, Taiwan, who cultivate oysters at low and high densities

This study analyzed the effects of price changes on the annual costs and returns of 162 oyster farmers in Changhua County, Taiwan, who cultivate oysters at two levels of density: low and high. Specifically, it used the translog profit function to evaluate the effects of changes in oyster prices on output supply and the demand of various inputs at the two densities of oyster cultivation. The study found that high-density farmers generate more profit than low-density farmers because they experience lower average costs. The results of the output supply elasticity with respect to input prices indicate that wages and other miscellaneous prices are the two main factors that negatively and more significantly affect the production of low- and high-stocking-density farmers. Own price elasticity of other miscellaneous input (−1.814), labor input (−1.805), seed input (−1.682), and input of capital (−1.58) was more responsive to price changes for high-density farmers than for low-density farmers. This indicates that increases in input prices have a significant effect on reducing input demand for high-density farmers. The cross-price elasticities of the variable inputs labor–seed and labor–other miscellaneous are −0.648 and −0.649, respectively. These negative elasticities indicate that labor–seed and labor–other miscellaneous are complementary inputs, which suggests their combined application increases farm production synergistically for low-density farmers.

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

Supply Response Analysis of Rice Growers in District Gujranwala, Pakistan

The study was designed to estimate the restricted profit function in district Gujranwala, Punjab, Pakistan. Data were collected from 100 respondents using proportional allocation sampling tech-nique. The analysis was done using SHAZAM software. The results indicate that the farmers are price-responsive. Rice own price elasticity was 1.873. The output supply elasticity of rice with re-spect to education, land, fertilizer price and irrigation cost were 0.0.169, 1.274, -0.873 and -0.953 respectively. Irrigation demand elasticity with respect to education, land, fertilizer price, irrigation cost and output price were 0.14, 1.14, -0.783, -1.84 and 1.78 respectively. Fertilizer demand elasticity with respect to education, land, fertilizer price, irrigation cost and output price was 0.023, 0.792, -1.65, -0.85 and 1.851 respectively. Lastly, the elasticity of profit with respect to education, land, fertilizer price, irrigation cost and output price was 0.20, 1.10, -0.83, -1.136 and 1.92 respectively. The study recommends that Government should provide consistent electricity with stable rates, so that, they irrigate their fields through electric tube wells and ultimately their cost of irrigation decreases. The study also suggests that government should stabilized fertilizer prices to encourage its application. Furthermore, government should raise procurement price of rice to encourage its supply this; it in turn will also increase the profit of the farmer.

Estimating the supply elasticity of cotton in Mali with the Nerlove Model: A bayesian method of moments approach

Summary – Mali is among the first cotton growers in Africa. Since the early nineties, it has been reforming its cotton sector by means of different policy measures. In this paper, we estimate the supply elasticity of cotton in order to have a precise idea about how producers react to price changes and what are the potential bottlenecks. Contrary to all the previous studies which fail to consistently estimate the long run elasticity of supply, we apply the Bayesian method of moments, following Zellner’s (1978) Minimum Expected Loss Estimators (MELO) approach. A key finding is that output supply elasticity is low in the short run due to structural constraints and high in the long run.

Supply Response and Investment in Agriculture in Andhra Pradesh

The study explored the response of aggregate farm output, input use, and farm investment decisions to output and input prices, wages, technological change, public investments, and climatic factors using district-level panel data of over 39 years from Andhra Pradesh. It confirms the low, short-run aggregate output supply elasticity of Indian agriculture as found in the literature. It validates the hypothesis that the relationships between public investment, financial institutions, and farm investment of labor and capital in agriculture have not changed over the years. The empirical estimates of aggregate output supply elasticity with respect to output price (0.2), roads (0.2), markets (0.11), and net irrigated area (0.05) are higher than previous findings for selected states in India. Aggregate agricultural output responds positively to credit availability (represented by banks) and canal irrigation, each with an elasticity of 0.01. The wage elasticity (0.3) on aggregate output is higher than price elasticity (0.2), indicating that the effects of rising wages outweigh the incentives offered by output price support. Climatic factors (e.g., rainfall) significantly affect fertilizer use and aggregate output while deviation from normal rainfall adversely affects aggregate output. The study substantiates previous findings that public investment in infrastructure and financial institutions respond to the agriculture potential and agro-climatic endowments of an area. A renewed focus, therefore, is required for better targeting of public investments in areas that are relatively resource poor and have harsh agro-climatic conditions for a more inclusive growth and rural poverty reduction.

Ozone pollution and farm profits in England and Wales

Tropospheric ozone is an air pollutant known to adversely affect crop yields across Europe. Experimental work is underway to quantify yield effects at ambient ozone levels for a number of crops. In this article, we undertake direct, farm-level evaluation of the impact of ozone by estimating a multi-output profit function using a panel dataset of cereal farms in England and Wales. A system of equations, comprising the profit function, input and output share equations is estimated using a fixed-effects seemingly unrelated regression technique, with ozone as a quasi-fixed input. Estimated parameters are used to calculate tropospheric ozone-related profit and output supply elasticities. The main findings from the profit function show that a 10% increase in average ozone levels would decrease variable profits by 1.3% and wheat output supply by 1%. These results are of a significantly lower magnitude, but qualitatively consistent with findings from similar studies carried out in North America.

Protection versus Promotion: An Empirical Investigation

Using Turkish industry‐level data from 1983 to 1990, we find that politically organized industries receive both higher protection and promotion than unorganized ones. Tariff rates are decreasing (increasing) in the import‐penetration ratio and the absolute value of the import‐demandelasticity for organized (unorganized) industries. Subsidy rates are decreasing (increasing) in the output‐supply elasticity for organized (unorganized) industries. The results are consistent with the predictions of the Grossman–Helpman model and its extension in this paper. The mix of protection and promotion is inversely related to the ratio of their respective marginal deadweight cost measures.

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.

Aggregate agricultural supply response in Ethiopia: a farm‐level analysis

AbstractThis study examines the responsiveness of peasant farmers in Ethiopia to price and non‐price factors. Quadratic production and restricted profit functions are estimated using farm‐level survey data from Ethiopia in 1994. The results indicate that farmers respond only modestly to price incentives. The own‐price output supply elasticity is very low and output supply is not responsive to fertilizer prices or the wage rate. Non‐price factors are far more important in affecting production and resource use than price incentives. The results are robust to whether the primal or dual approach is used to estimate elasticities. The results underscore the need to strengthen market incentives through effective policies that will improve farmers' access to fertilizer, land and credit, public investment in roads and irrigation. Copyright © 2004 John Wiley & Sons, Ltd.

Analyzing Technical and Economic Interrelationships in Hawaii's Longline Fishery

This paper provides an analysis of technical and economic interrelationships among species harvested in Hawaii's pelagic longline fishery. The results indicate that this multispecies fishery is characterized by a joint production process, meaning that the regulation of one species would affect the harvest of other species. It implies that a single species regulation may not be appropriate in managing the longline fishery. Estimates of own-price output supply elasticities suggest that fisher's decisions on the amounts of each species harvested are independent of own expected prices. However, as evidenced by the estimates of cross-price elasticities, there are a number of significant technical-economic interactions among species. Failing to reject the null hypothesis of input-output separability suggests that management of the entire fishery as a whole by partial area/seasonal closure or by a 'limited entry' system as in the past is justified instead of regulating a few key species.

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.