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A method for calibrating input (and output) price elasticities

Listed author(s):
  • Michael M. Alba

    (De La Salle University, Philippines)

  • Roehlano M. Briones

    (Philippine Institute for Development Studies)

We propose a theoretically consistent method for calibrating input (and output) price elasticities (of agricultural crops) from a minimal set of given estimates. Our review of production theory suggests three starting points for the exercise : (a) inputs and outputs have to be classified by input nonjointness, (b) production functions may be assumed to be linearly homogeneous, and (c) given an n x n (symmetric) matrix of elasticities, which has n(n+1)/2 distinct cells, the values of n(n-1)/2 of the distinct cells must be known to solve the n unknown elasticities. Exploiting Shephard’s Lemma and Euler’s Theorem, we work out the method for a cost function with four inputs. We also provide a numerical example involving a 9 x 9 matrix of a multiple-output profit function.

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Article provided by University of the Philippines School of Economics and Philippine Economic Society in its journal Philippine Review of Economics.

Volume (Year): 46 (2009)
Issue (Month): 2 (December)
Pages: 63-89

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Handle: RePEc:phs:prejrn:v:46:y:2009:i:2:p:63-89
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