Estimation of Area Elasticities from a Standard Profit Function

Posted: 23 Jul 2007

See all articles by Carlos Arnade

Carlos Arnade

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS) - Market & Trade Economics Division

David Kelch

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS)

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Abstract

This article demonstrates that both crop area and output elasticities can be calculated from a profit function. A Chambers/Just profit function (which includes land allocations as quasi-fixed factors) is used to derive shadow price equations for each crop area allocation. Jointly solving these shadow price equations for crop area makes it possible to calculate individual crop area elasticities. A profit function is specified to represent agricultural producers in the state of Iowa. Shadow price equations are jointly estimated with output supply and input demand equations. From these estimated equations, we derive the individual crop area response and output response to a change in prices.

Suggested Citation

Arnade, Carlos and Kelch, David, Estimation of Area Elasticities from a Standard Profit Function. American Journal of Agricultural Economics, Vol. 89, No. 3, pp. 727-737, August 2007, Available at SSRN: https://ssrn.com/abstract=1002116 or http://dx.doi.org/10.1111/j.1467-8276.2007.01004.x

Carlos Arnade (Contact Author)

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS) - Market & Trade Economics Division ( email )

Washington, DC
United States

David Kelch

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS) ( email )

355 E Street, SW
Washington, DC 20024-3221
United States

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