Estimates of Farm Output Supply and Input Demand Elasticities: The Translog Profit Function Approach

Abstract

The importance of estimating valid elasticities of farm output supply and input demand can hardly be overemphasised. Reliable estimates of these elasticities are sine qua non for predicting accurately the farmer responsiveness to changes in inputoutput prices and government taxes and thereby for formulating successful agricultural incentive programmes consistent with national requirements of food, development and exports. In fact, robust estimates of the coefficients of such elasticities can serve as a solid basis in determining effective policy relevant interventions for promoting production, equity, efficiency, and finally egalitarian income distribution in the farm sector of the economy. Farmer input factor demand and output supply elasticities have earlier been derived with direct or indirect application of the Cobb-Douglas production function to farm survey data [Lau and Yotopoulos (1971); Yotopoulos (1972); Yotopoulos, Lau and Lin (1976); Junankar (1980) and Sindhu and Baanannte (1981)]. The Cobb- Douglas production function is based on highly restricted assumptions such as the unitary elasticity of substitution, constant returns to scale and "a priori" imposition of separability restrictions.