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

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

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.

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File URL: http://www.factormarkets.eu/system/files/FM%20WP44%20Theoretical%20Framework%20to%20Estimate%20Farm%20Labour.pdf
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Paper provided by Centre for European Policy Studies in its series Factor Markets Working Papers with number 156.

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Length: 18 pages
Date of creation: Jun 2013
Date of revision:
Handle: RePEc:eps:fmwppr:156
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  1. Huffman, Wallace & Evenson, Robert E., 1989. "Supply and Demand Functions for Multiproduct U.S. Cash Grain Farms: Biases Caused by Research and Other Policies," Staff General Research Papers 10985, Iowa State University, Department of Economics.
  2. David P. Vincent, 1977. "Factor Substitution In Australian Agriculture," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 21(2), pages 119-129, 08.
  3. Binswanger, Hans P., 1973. "The Measurement Of Technical Change Biases With Many Factors Of Production," Staff Papers 14205, University of Minnesota, Department of Applied Economics.
  4. Christopher J. O'Donnell & C. Richard Shumway & V. Eldon Ball, 1999. "Input Demands and Inefficiency in U.S. Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 865-880.
  5. Vincent, David P., 1977. "Factor Substitution In Australian Agriculture," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 21(02), August.
  6. Fuss, Melvyn & McFadden, Daniel & Mundlak, Yair, 1978. "A Survey of Functional Forms in the Economic Analysis of Production," Histoy of Economic Thought Chapters, in: Fuss, Melvyn & McFadden, Daniel (ed.), Production Economics: A Dual Approach to Theory and Applications, volume 1, chapter 4 McMaster University Archive for the History of Economic Thought.
  7. Griffin, Ronald C. & Montgomery, John M. & Rister, M. Edward, 1987. "Selecting Functional Form In Production Function Analysis," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 12(02), December.
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