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A method for calibrating input (and output) price elasticities

Author

Listed:
  • Michael M. Alba

    (De La Salle University, Philippines)

  • Roehlano M. Briones

    (Philippine Institute for Development Studies)

Abstract

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.

Suggested Citation

  • Michael M. Alba & Roehlano M. Briones, 2009. "A method for calibrating input (and output) price elasticities," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 46(2), pages 63-89, December.
  • Handle: RePEc:phs:prejrn:v:46:y:2009:i:2:p:63-89
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    File URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/4/667
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    Cited by:

    1. Briones, Roehlano M., 2011. "Multimarket Modeling of Agricultural Supply when Crop Land Is a Quasi-fixed Input: A Note," Discussion Papers DP 2011-29, Philippine Institute for Development Studies.

    More about this item

    Keywords

    calibration; elasticities; substitution matrix; cost function; Euler's Theorem; Shephard's Lemma;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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