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Asset Utilization and Bias in Measures of U.S. Agricultural Productivity

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  • Alston, Julian M.
  • Andersen, Matthew A.
  • Pardey, Philip G.

Abstract

A common observation is that measures of productivity growth are pro-cyclical, meaning they are higher (or grow faster) on average during periods of economic expansion than during periods of economic contraction. This study focuses on measurement errors related to capital inputs as an explanation for the existence of pro-cyclical patterns in measures of agricultural productivity. Calculating a time series of capital inputs is difficult and prone to errors. Myriad assumptions are required to construct a typical measure of the capital stock, and further, sometimes related, assumptions must be made about the utilization of the stock to derive a measure of capital service flows. We test the hypothesis that unmeasured changes in the utilization of capital can affect productivity measures. This is accomplished using recently constructed indexes of inputs, outputs, and productivity in U.S. agriculture for 1949-2002. We find that utilization responses by farmers are significant and bias measures of productivity growth in a pro-cyclical pattern. The bias is quantified and the measures of productivity are adjusted for the estimated utilization responses and compared to the original measures.

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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2006 Annual meeting, July 23-26, Long Beach, CA with number 21220.

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Date of creation: 2006
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Handle: RePEc:ags:aaea06:21220

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Keywords: Financial Economics;

References

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  1. Lilyan E. Fulginiti & Richard K. Perrin, 1992. "Prices and Productivity in Agriculture," Center for Agricultural and Rural Development (CARD) Publications 93-gatt2, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  2. Susanto Basu & John Fernald, 2000. "Why is productivity procyclical? Why do we care?," Working Paper Series WP-00-11, Federal Reserve Bank of Chicago.
  3. Catherine J. Morrison, 1985. "On the Economic Interpretation and Measurement of Optimal Capacity Utilization with Anticipatory Expectations," NBER Working Papers 1536, National Bureau of Economic Research, Inc.
  4. Susanto Basu, 1995. "Procyclical Productivity: Increasing Returns or Cyclical Utilization?," NBER Working Papers 5336, National Bureau of Economic Research, Inc.
  5. Susanto Basu & Miles S. Kimball, 1997. "Cyclical Productivity with Unobserved Input Variation," NBER Working Papers 5915, National Bureau of Economic Research, Inc.
  6. Moschini, GianCarlo, 2001. "Production Risk and the Estimation of Ex Ante Cost Functions," Staff General Research Papers 1922, Iowa State University, Department of Economics.
  7. Hayami, Yujiro & Ruttan, Vernon W, 1970. "Agricultural Productivity Differences Among Countries," American Economic Review, American Economic Association, vol. 60(5), pages 895-911, December.
  8. Morrison, Catherine J., 1986. "Productivity measurement with non-static expectations and varying capacity utilization : An integrated approach," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 51-74.
  9. Mundlak, Yair & Larson, Don & Butzer, Ritz, 1997. "The determinants of agricultural production : a cross-country analysis," Policy Research Working Paper Series 1827, The World Bank.
  10. Mundlak, Yair, 1996. "Production Function Estimation: Reviving the Primal," Econometrica, Econometric Society, vol. 64(2), pages 431-38, March.
  11. Paris, Quirino & Caputo, Michael R., 1995. "The Rhetoric Of Duality," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 20(01), July.
  12. Slade, Margaret E., 1986. "Total-factor-productivity measurement when equilibrium is temporary : A Monte Carlo assessment," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 75-95.
  13. Pope, Rulon D. & Just, Richard E., 1996. "Empirical implementation of ex ante cost functions," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 231-249.
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