The Measurement of Biased Efficiency Gains in U.S. and Japanese Agriculture to Test the Induced Innovation Hypothesis

The basic purpose of this study was to test the induced innovation hypothesis at a very basic level. The hypothesis states that biases in efficiency gains arising from technical change and other sources are endogenously determined by economic forces rather than exogenously by the physicaJ, chemical and biological laws of nature. The key ide;:i of the test i1;, as follows: If biases are determined exogenously, two countries with different factor endowments and differ­ences in other economic variables would experience the same patterns of biases over a prolonged period of time. If the biases differ, there is a strong presumption that these differences have been determined by endogenous economic forces. Biases were measured for the agricultural sectors of the United States and Japan, Estimation equations for the biases in the case of a many-factor production process were developed using a Transcendental Logarithmic cost function in factor-augmenting form. Using these equations it is possible to divide observed share changes into a com­ponent due to efficiency gains and a component due to price changes, The components due to efficiency gains were then used to construct indices of biases, The application of this method required that one first estimate the parameters of the Translog cost function. This was done with cross­section sta:e data for the United States using generalized least squares techniques. The estimated parameters also provided estimates of a set of elasticities and cross elasticities of factor demand and a set of elasticities of substitution. The resulting indices of bias indicate marked differences between the United States and the Japanese experience. The conclusion reached is that the basic premise of the induced innovation hypothesis is cor­rect, Biases are determined by economic forces. However, little evidence as to the precise inducement mechanisms was found.