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Modeling of Big Chili Supply Response Using Bayesian Method

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  • Fajar, Muhammad
  • Winarti, Yuyun Guna

Abstract

This study aims to estimate the response model of Big Chili offerings with the Bayesian method so that information elasticity of price (production) derived from posterior hyperparameter can be obtained. The method used in this study is a supply response model that adopts the Nerlove model and it is estimated with the Bayesian method. The data used in this study are Big Chili production (kg), harvested area (hectares), and Big Chili prices of producer level (IDR/kg) with the period 2008 - 2018 monthly sourced from Statistics Indonesia. The Bayesian method can be applied in the estimation of the Nerlove Model of The Big Chili supply. However, the resulting coefficient of determination is low by 21.05%. The reason is thought to be the use of prior that have a bias effect on posterior distribution and/or there is a nonlinear relationship to the variables in the model. However, only two variables were not significant from the five predictor variables, namely the price of producer level of Big Chili at time t-1 and the production of Big Chili at time t-2. The estimation results of price elasticity in the short and long-term were 8.49% and 2.50%, respectively, which are the inelastic category. It shows that farmers are not responsive to prices. Because the costs of cultivation are high, so it causes the profits obtained by farmers not so much , even though the farm-level prices increase. It becomes insignificant for income farmers.

Suggested Citation

  • Fajar, Muhammad & Winarti, Yuyun Guna, 2020. "Modeling of Big Chili Supply Response Using Bayesian Method," MPRA Paper 106098, University Library of Munich, Germany, revised 21 Dec 2020.
    • Handle: RePEc:pra:mprapa:106098
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    File URL: https://mpra.ub.uni-muenchen.de/106098/1/MPRA_paper_106098.pdf
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    References listed on IDEAS

    as
    1. Leaver, Rosemary, 2003. "Measuring The Supply Response Function Of Tobacco In Zimbabwe," 2003 Annual Conference, October 2-3, 2003, Pretoria, South Africa 19079, Agricultural Economics Association of South Africa (AEASA).
    2. Braulke, Michael, 1982. "A Note on the Nerlove Model of Agricultural Supply Response," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(1), pages 241-244, February.
    3. Marc Nerlove & William Addison, 1958. "Statistical Estimation of Long-Run Elasticities of Supply and Demand," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 40(4), pages 861-880.
    4. Askari, Hossein & Cummings, John Thomas, 1977. "Estimating Agricultural Supply Response with the Nerlove Model: A Survey," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 257-292, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Big Chili; Supply; Nerlove Model; Price Elasticity; Bayesian; Prior;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices

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