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The Theoretical Framework and Methodology to Estimate the Farm Labour and Other Factor-Derived Demand and Output Supply Systems

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  • Tocco, Barbara
  • Bailey, Alastair
  • Davidova, Sophia

Abstract

This paper provides a conceptual framework for the estimation of the farm labour and other factorderived demand and output supply systems. In order to analyse the drivers of labour demand in agriculture and account for the impact of policies on those decisions, it is necessary to acknowledge the interaction between the different factor markets. For this purpose, we present a review of the theoretical background to primal and dual representations of production and some empirical literature that has made use of derived demand systems. The main focus of the empirical work is to study the effect of market distortions in one market, through inefficient pricing, on the demand for other inputs. Therefore, own-price and cross-price elasticities of demand become key variables in the analysis. The dual cost function is selected as the most appropriate approach, where input prices are assumed to be exogenous. A commonly employed specification – and one that is particularly convenient due to its flexible form – is the translog cost function. The analysis consists of estimating the system of costshare equations, in order to obtain the derived demand functions for inputs. Thus, the elasticities of factor substitution can be used to examine the complementarity/substitutability between inputs.

Suggested Citation

  • Tocco, Barbara & Bailey, Alastair & Davidova, Sophia, 2013. "The Theoretical Framework and Methodology to Estimate the Farm Labour and Other Factor-Derived Demand and Output Supply Systems," Working papers 155702, Factor Markets, Centre for European Policy Studies.
    • Handle: RePEc:ags:famawp:155702
    DOI: 10.22004/ag.econ.155702
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    2. John Njenga Macharia & Gracious Malton Diiro & John Rono Busienei & Kimpei Munei & Hippolyte D. Affognon & Sunday Ekesi & Beatrice Muriithi & Dorothy Nakimbugwe & Chrysantus Mbi Tanga & Komi K. M. Fia, 2020. "Gendered analysis of the demand for poultry feed in Kenya," Agrekon, Taylor & Francis Journals, vol. 59(4), pages 426-439, October.
    3. Manyeki, John Kibara & Kotosz, Balázs & Kanó, Izabella Szakálné, 2021. "Unconditional factor demands and supply response for livestock products: A farm-level analysis of the Southern Rangelands of Kenya," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 16(3), September.

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