Imperfect Price Deflation in Production Systems

Posted: 23 Jul 2007

See all articles by Rulon D. Pope

Rulon D. Pope

Brigham Young University - Department of Economics

Jeffrey T. LaFrance

University of California, Berkeley

Richard E. Just

University of Maryland - Department of Agricultural & Resource Economics

Abstract

Numeraire prices that are measured with error create challenges for econometric estimation. A straightforward approach for a model with linear input demands, such as generated from a quadratic normalized profit function, is proposed where the numeraire price is measured with error. Numeraire measurement error is likely because expected output price is measured imperfectly by actual output price. An approach using generalized method of moments is developed to estimate such errors-in-variables (EIV) systems that avoids use of extra-sample data or additional structural specifications. Monte Carlo examination of small sample properties shows promise. Measurement error is statistically significant using aggregate U.S. agricultural data.

Suggested Citation

Pope, Rulon Dean and LaFrance, Jeffrey T. and Just, Richard E., Imperfect Price Deflation in Production Systems. American Journal of Agricultural Economics, Vol. 89, No. 3, pp. 738-754, August 2007, Available at SSRN: https://ssrn.com/abstract=1002135 or http://dx.doi.org/10.1111/j.1467-8276.2007.00986.x

Rulon Dean Pope (Contact Author)

Brigham Young University - Department of Economics ( email )

130 Faculty Office Bldg.
Provo, UT 84602-2363
United States

Jeffrey T. LaFrance

University of California, Berkeley ( email )

207 Giannini Hall / MC 3310
Berkeley, CA 94720
United States
510-643-5416 (Phone)
510-643-8911 (Fax)

Richard E. Just

University of Maryland - Department of Agricultural & Resource Economics ( email )

Symmons Hall, Rm 2200
University of Maryland
College Park, MD 20742-5535
United States
301-405-1289 (Phone)

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