Modeling of Big Chili Supply Response Using Bayesian Method

Muhammad Fajar and Yuyun Guna Winarti

MPRA Paper from University Library of Munich, Germany

Abstract: This study aims to estimate the response model of Big Chili offerings with the Bayesian method so that information elasticity of price (production) derived from posterior hyperparameter can be obtained. The method used in this study is a supply response model that adopts the Nerlove model and it is estimated with the Bayesian method. The data used in this study are Big Chili production (kg), harvested area (hectares), and Big Chili prices of producer level (IDR/kg) with the period 2008 - 2018 monthly sourced from Statistics Indonesia. The Bayesian method can be applied in the estimation of the Nerlove Model of The Big Chili supply. However, the resulting coefficient of determination is low by 21.05%. The reason is thought to be the use of prior that have a bias effect on posterior distribution and/or there is a nonlinear relationship to the variables in the model. However, only two variables were not significant from the five predictor variables, namely the price of producer level of Big Chili at time t-1 and the production of Big Chili at time t-2. The estimation results of price elasticity in the short and long-term were 8.49% and 2.50%, respectively, which are the inelastic category. It shows that farmers are not responsive to prices. Because the costs of cultivation are high, so it causes the profits obtained by farmers not so much , even though the farm-level prices increase. It becomes insignificant for income farmers.

Keywords: Big Chili; Supply; Nerlove Model; Price Elasticity; Bayesian; Prior (search for similar items in EconPapers)
JEL-codes: C11 C52 Q11 Q21 (search for similar items in EconPapers)
Date: 2020-12-10, Revised 2020-12-21
New Economics Papers: this item is included in nep-ore and nep-sea
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Published in International Journal of Scientific Research in Mathematical and Statistical Sciences 6.7(2020): pp. 29-33

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