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The CDET Profit Function: Could it generate a Parsimonious Agricultural Sector Model?

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  • Hess, Sebastian
  • Surry, Yves R.

Abstract

While the single- output Constant Difference of Elasticities (CDE) cost function has been applied several times, its profit counterpart called “the Constant Difference of Elasticities of Transformation” (CDET) profit frontier has not yet been applied econometrically. It is an indirect, implicit, non-homothetic and non-separable frontier that may be viewed as more flexible than the commonly used CES and Cobb-Douglas specifications, while demanding less parameters to be estimated than fully flexible functional forms commonly do. We therefore introduce the CDET profit function and illustrate its potential usefulness as a parsimonious econometric model of agricultural production in Switzerland. Results indicate plausible elasticities and a satisfactory fit to the data; however, successful estimation requires that certain theoretical characteristics of the CDET are exactly obeyed.

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Bibliographic Info

Paper provided by European Association of Agricultural Economists in its series 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland with number 114539.

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Date of creation: 2011
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Handle: RePEc:ags:eaae11:114539

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Keywords: CDE; Profit function; Agricultural Sector; Functional Form; Switzerland; Agricultural Finance;

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  1. Hanoch, Giora, 1978. "Polar Functions with Constant Two Factors - One Price Elasticities," Histoy of Economic Thought Chapters, in: Fuss, Melvyn & McFadden, Daniel (ed.), Production Economics: A Dual Approach to Theory and Applications, volume 1, chapter 6 McMaster University Archive for the History of Economic Thought.
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  9. Yves Surry & Nadine Herrard & Yves Le Roux, 2003. "Modelling trade in processed food products: an econometric investigation for France," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 30(4), pages 571-571, December.
  10. Hanoch, Giora, 1975. "Production and Demand Models with Direct or Indirect Implicit Additivity," Econometrica, Econometric Society, vol. 43(3), pages 395-419, May.
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