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A Cost Function Approach to the Measurement of Elasticities of Factor Demand and Elasticities of Substitution

A Cost Function Approach to the Measurement of Elasticities of Factor Demand and Elasticities of... FACTOR PRODUCTIVITY IN AGRICULTURE Chairman: T. D. WALLACE, NORTH CAROLINA STATE UNIVERSITY A Cost Function Approach to the Measurement of Elasticities of Factor Demand and Elasticities of Substitution* HANS P. BINSWANGER H E USE of a cost function rather than a or of neutral and non-neutral economies of scale production function for estimating pro­ can be handled conveniently.' Therefore, these duction parameters has several advan­ problems will not result in biased estimates of tages: the production parameters. As will be discussed, 1. It is not necessary to impose homogeneity such differences can result from a variety of of degree one on the production process to sources. Most methods of estimating production arrive at estimation equations. Cost functions cannot handle this problem properly. are homogeneous in prices regardless of the 5. In the case of the Translog cost function homogeneity properties of the production func­ (as well as the Translog production function), tion, because a doubling of all prices will double all estimation equations are linear in logarithms. the costs but will not affect factor ratios. 6. In production function estimation, high 2. In general, the estimation equations have multicollinearity among the input variables often prices as independent variables rather http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Journal of Agricultural Economics Wiley

A Cost Function Approach to the Measurement of Elasticities of Factor Demand and Elasticities of Substitution

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References (2)

Publisher
Wiley
Copyright
© Agricultural and Applied Economics Association
ISSN
0002-9092
eISSN
1467-8276
DOI
10.2307/1238771
Publisher site
See Article on Publisher Site

Abstract

FACTOR PRODUCTIVITY IN AGRICULTURE Chairman: T. D. WALLACE, NORTH CAROLINA STATE UNIVERSITY A Cost Function Approach to the Measurement of Elasticities of Factor Demand and Elasticities of Substitution* HANS P. BINSWANGER H E USE of a cost function rather than a or of neutral and non-neutral economies of scale production function for estimating pro­ can be handled conveniently.' Therefore, these duction parameters has several advan­ problems will not result in biased estimates of tages: the production parameters. As will be discussed, 1. It is not necessary to impose homogeneity such differences can result from a variety of of degree one on the production process to sources. Most methods of estimating production arrive at estimation equations. Cost functions cannot handle this problem properly. are homogeneous in prices regardless of the 5. In the case of the Translog cost function homogeneity properties of the production func­ (as well as the Translog production function), tion, because a doubling of all prices will double all estimation equations are linear in logarithms. the costs but will not affect factor ratios. 6. In production function estimation, high 2. In general, the estimation equations have multicollinearity among the input variables often prices as independent variables rather

Journal

American Journal of Agricultural EconomicsWiley

Published: May 1, 1974

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