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Imperfect Price Deflation in Production Systems

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  • Rulon D. Pope
  • Jeffrey T. LaFrance
  • Richard E. Just

Abstract

Numéraire prices that are measured with error create challenges for econometric estimation. A straightforward approach for a model with linear input demands, such as generated from a quadratic normalized profit function, is proposed where the numéraire price is measured with error. Numéraire measurement error is likely because expected output price is measured imperfectly by actual output price. An approach using generalized method of moments is developed to estimate such errors-in-variables (EIV) systems that avoids use of extra-sample data or additional structural specifications. Monte Carlo examination of small sample properties shows promise. Measurement error is statistically significant using aggregate U.S. agricultural data. Copyright 2007, Oxford University Press.

Suggested Citation

  • Rulon D. Pope & Jeffrey T. LaFrance & Richard E. Just, 2007. "Imperfect Price Deflation in Production Systems," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(3), pages 738-754.
    • Handle: RePEc:oup:ajagec:v:89:y:2007:i:3:p:738-754
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    File URL: http://hdl.handle.net/10.1111/j.1467-8276.2007.00986.x
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    Cited by:

    1. Andersen, Matthew A. & Alston, Julian M. & Pardey, Philip G., 2009. "Capital Service Flows: Concepts and Comparisons of Alternative Measures in U.S. Agriculture," Staff Papers 50098, University of Minnesota, Department of Applied Economics.
    2. Jeffrey LaFrance & Rulon Pope & Jesse Tack, 2011. "Risk Response in Agriculture," NBER Chapters, in: The Intended and Unintended Effects of US Agricultural and Biotechnology Policies, pages 143-186, National Bureau of Economic Research, Inc.
    3. Jesse Tack & Rulon Pope & Jeffrey LaFrance & Timothy Graciano & Scott Colby, 2012. "Intertemporal Risk Management in Agriculture," Monash Economics Working Papers 16-12, Monash University, Department of Economics.
    4. Jesse B. Tack & Rulon D. Pope & Jeffrey T. LaFrance & Ricardo H. Cavazos, 2015. "Modelling an aggregate agricultural panel with application to US farm input demands," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 42(3), pages 371-396.

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