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Robust Error Specification in a Production System

  • Rulon D. Pope
  • Jeffrey T. LaFrance

Economists estimating demand and supply systems face the question of using shares or quantities as dependent variables. This article finds that inconsistent estimates are obtained if one makes the wrong choice. A robust structure is presented to let the data choose the preferred form. Empirical applications to U.S. and Texas agriculture using the generalized method of moments suggest that shares and quantities are rejected in favor of a more general functional form. The Texas application provides some evidence for fixed capital but not for labor. Copyright 2013, Oxford University Press.

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Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 95 (2013)
Issue (Month): 3 ()
Pages: 669-684

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Handle: RePEc:oup:ajagec:v:95:y:2013:i:3:p:669-684
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  1. Thompson, Gary D., 1988. "Choice Of Flexible Functional Forms: Review And Appraisal," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 13(02), December.
  2. Bryan W. Brown & Mary Beth Walker, 1992. "Stochastic specification in random production models of cost minimizing firms," FRB Atlanta Working Paper No. 92-6, Federal Reserve Bank of Atlanta.
  3. Amemiya, Takeshi & Powell, James L., 1981. "A comparison of the Box-Cox maximum likelihood estimator and the non-linear two-stage least squares estimator," Journal of Econometrics, Elsevier, vol. 17(3), pages 351-381, December.
  4. Brown, Bryan W. & Walker, Mary Beth, 1995. "Stochastic specification in random production models of cost-minimizing firms," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 175-205.
  5. David Aadland & DeeVon Bailey, 2001. "Short-Run Supply Responses in the U.S. Beef-Cattle Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(4), pages 826-839.
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