Cap reform: modelling supply response subject to the land set-aside
This paper uses duality theory to develop a model of European Community agriculture. The model is used to investigate the impact of the land set-aside provision of the recent package of reforms of the Common Agricultural Policy. We assume that producers chose output and variable input levels that maximize difference between revenue and variable cost. By including first-order conditions for the allocation of land across its uses, we impose that the observed allocations are profit-maximizing allocations. To overcome the problem of incorporating many outputs into an estimable production structure, we imposed a priori the restriction that the technology was weakly separable in major categories of outputs. With this restriction, it was possible to model production decisions in stages using consistent aggregates in the latter stages.
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- Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
- Berndt, Ernst R & Savin, N Eugene, 1975. "Estimation and Hypothesis Testing in Singular Equation Systems with Autoregressive Disturbances," Econometrica, Econometric Society, vol. 43(5-6), pages 937-57, Sept.-Nov.
- Ball, V Eldon, et al, 1993. "The Stock of Capital in European Community Agriculture," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 20(4), pages 437-50.
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