Imperfect Price Deflation in Production Systems

17 Pages Posted: 24 Apr 2020

See all articles by Rulon D. Pope

Rulon D. Pope

Brigham Young University

Jeffrey T. LaFrance

University of California, Berkeley

Richard Just

University of Maryland

Date Written: August 2007

Abstract

Numéraire 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 numéraire price is measured with error. Numéraire 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.

Keywords: errors-in-variables, expected prices, GMM estimation, input demands

Suggested Citation

Pope, Rulon D. and LaFrance, Jeffrey T. and Just, Richard, Imperfect Price Deflation in Production Systems (August 2007). American Journal of Agricultural Economics, Vol. 89, Issue 3, pp. 738-754, 2007, Available at SSRN: https://ssrn.com/abstract=3583730 or http://dx.doi.org/10.1111/j.1467-8276.2007.00986.x

Rulon D. Pope (Contact Author)

Brigham Young University

Provo, UT 84602
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 Just

University of Maryland

College Park
College Park, MD 20742
United States

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