Policy structure, output supply and input demand for US crops

Satheesh Venkata Aradhyula

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: In this study a crop sector model for the United States was constructed. A theoretical framework incorporating agricultural producers decisions on whether to comply with the volunteer commodity programs was developed. Unlike previous studies, policy variables are directly incorporated in a structural framework. A multioutput-multiinput technology in a dual framework was used for the present study. Crop supply and input demand equations were derived from a normalized quadratic profit function. The crop sector module consisted of thirteen crops (wheat, rice, corn, other coarse grains, soybeans, hay, cotton, peanuts, flaxseed and sunflower, sugarcane and sugarbeet, tobacco, vegetables, and fruits and nuts), four variable inputs (land, fertilizer, operating capital, and labor) and one fixed input (durable farm machinery);Thirteen product supply and four variable input demand equations were estimated simultaneously using full information maximum likelihood methods maintaining all the theoretical restrictions. Additionally, commodity program participation rates equations, as implied by the theoretical model, were econometrically estimated. This combination of microeconomic theory and structural policy implementation represent a contribution to the areas of applied production analysis and quantitative policy analysis. Empirical results are very encouraging and consistent with the theoretical model. The elasticity estimates are within a reasonable range. Results further indicated that microeconomic theory can be fruitfully combined with structural policy representations to yield a crop sector module that can be used for policy evaluation in a general equilibrium analysis.

Date: 1989-01-01
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