A method for calibrating input (and output) price elasticities
AbstractWe propose a theoretically consistent method for calibrating input (and output) price elasticities (of agricultural crops) from a minimal set of given estimates. Our review of production theory suggests three starting points for the exercise : (a) inputs and outputs have to be classified by input nonjointness, (b) production functions may be assumed to be linearly homogeneous, and (c) given an n x n (symmetric) matrix of elasticities, which has n(n+1)/2 distinct cells, the values of n(n-1)/2 of the distinct cells must be known to solve the n unknown elasticities. Exploiting Shephard’s Lemma and Euler’s Theorem, we work out the method for a cost function with four inputs. We also provide a numerical example involving a 9 x 9 matrix of a multiple-output profit function.
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Bibliographic InfoArticle provided by University of the Philippines School of Economics and Philippine Economic Society in its journal Philippine Review of Economics.
Volume (Year): 46 (2009)
Issue (Month): 2 (December)
calibration; elasticities; substitution matrix; cost function; Euler's Theorem; Shephard's Lemma;
Find related papers by JEL classification:
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
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- Briones, Roehlano M., 2011. "Multimarket Modeling of Agricultural Supply when Crop Land Is a Quasi-fixed Input: A Note," Discussion Papers DP 2011-29, Philippine Institute for Development Studies.
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