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A note on the role of price risk in soya bean supply functions

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  • Jung Hwan Min
  • Harry M. Kaiser

Abstract

This article examines whether the inclusion of the price risk variable as an explanatory variable in a Gardner-type acreage response model is statistically significant. By estimating six separate soya bean acreage response equations, including two linear equations with and without risk, two double logarithmic equations with and without risk and two semi-logarithmic equations with and without risk, we find that adding a risk variable to the futures price model yields a better statistical result in every case. Furthermore, the models that have incorporated the risk variable have higher own and cross-price elasticities. This is a desirable result, since in the literature, many previous estimated supply elasticities were considered lower than plausible.

Suggested Citation

  • Jung Hwan Min & Harry M. Kaiser, 2014. "A note on the role of price risk in soya bean supply functions," Applied Economics Letters, Taylor & Francis Journals, vol. 21(1), pages 55-59, January.
    • Handle: RePEc:taf:apeclt:v:21:y:2014:i:1:p:55-59
    DOI: 10.1080/13504851.2013.837574
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    2. Lin, William, 1977. "Measuring Aggregate Supply Response Under Instability," 1977 AAEA-WAEA Joint Meeting, July 31-August 3, San Diego, California 283678, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Just, Richard E., 1974. "Econometric Analysis of Production Decisions with Government Intervention: The Case of the California Field Crops," Monographs, University of California, Davis, Giannini Foundation, number 251950, December.
    4. William Lin, 1977. "Measuring Aggregate Supply Response under Instability," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 59(5), pages 903-907.
    5. Bruce L. Gardner, 1976. "Futures Prices in Supply Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 58(1), pages 81-84.
    6. Richard E. Just, 1974. "An Investigation of the Importance of Risk in Farmers' Decisions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 56(1), pages 14-25.
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