Pan A. Yotopoulos

The meta-production function approach to technological change in world agriculture☆

Abstract An alternative meta-production function for agriculture is estimated with the cross-section data for 43 countries and three years (1960, 1970 and 1980) constructed and used by Kawagoe, Hayami and Ruttan and Hayami and Ruttan in their studies. By allowing for country-specific efficiency factors and using a flexible functional form – the transcendental logarithmic production function – strikingly different results from those of Kawagoe, Hayami and Ruttan are obtained. In particular, it is found that elasticity of output with respect to machinery is variable and the degree of local returns to scale is not constant and increases with the usage of machinery.

Profit, Supply, and Factor Demand Functions

The concept of the profit function provides an alternative approach to the analysis of production. First, a brief exposition of the theory of profit function is presented. Then the profit function and the factor demand functions are formulated within the Cobb-Douglas framework. A statiscal test is devised for testing the hypothesis of constant returns to scale in all factors on the profit function. As an application, both the profit and the factor demand function are estimated jointly, using data from Indian agriculture.

Microeconomic Output Supply and Factor Demand Functions in the Agriculture of the Province of Taiwan

Normalized restricted profit functions have been employed in the empirical analysis of agricultural production by Lau and Yotopoulos in a crosssectional study of farms in India. The objective of the present study is to apply the same methodology to the analysis of data from a cross section of farm households in the Province of Taiwan, Republic of China. Two features distinguish this study from the earlier one. First, the number of variable inputs is increased from one to four. Second, the hypothesis of structural change as between successive cross sections is tested. Such a test of structural change may be interpreted as a test of the stability of the estimated production function parameters.

Middle-Income Classes and Food Crises: The "New" Food-Feed Competition

famine was averted. The novelty was that a 3% shortfall in grain production led to a 250% price increase. This specific manifestation of the food crisis was the result of the congruence of an old force (population pressure) with new ones (the income explosion and income inequality). In a world in which the economic distance between the rich and the poor grows ever greater, even minor food shortages are likely to assume major proportions. The agricultural price instability that will ensue represents a major threat to the food security of less developed countries. Examination of the ingredients of modern food crises can help explain some of the new ramifications of the age-old problem of world hunger. The three elements that are reflected in the food demand situation are population, incomes, and prices. To avoid needless complexity, I will reserve my examination of prices to the end. Population and incomes deserve more detailed analysis.

Exchange rate misalignment: a new test of long-run PPP based on cross-country data

A new empirical procedure is formulated and implemented to test long-run PPP by using cross-country data. It is found that out of a total of 153 countries, 132 and 105 countries have achieved PPP within 20 years and ten years, respectively.

The (rip) tide of privatization: Lessons from Chile

Abstract Chile is one of the rare exceptions where the voluble enthusiasm for privatization has been put into effect. Of the 500 companies that were under state ownership in the early 1970s, only 19 remained under public control at the end of the decade. Moreover, a land reform which had affected 43% of the countrys cultivable area was rolled back by almost 40%. Privatization indisputably increased the economic power of a number of conglomerates and fostered the concentration of assets. However, the complexity of the liberalization package that accompanied privatization makes it difficult to establish strict causality for the economic collapse that followed in the early 1980s. The Chilean experience with privatization reveals some interesting lessons that other countries may wish to consider.

From Stock to Flow Capital Inputs for Agricultural Production Functions: A Microanalytic Approach

CAPITAL is a multiperiodic input of production: it jointly supplies outputs with different time subscripts, and it contributes a major part of its services to future rather than to current production. While the distinction between current and future services may be unimportant for some purposes of analysis, production theory is exclusively concerned with the former. Only the current service flow of capital goods properly belongs as an input to the production function. The flow of capital services in a period of time, e.g., a year, would be approximated in a perfect market by the rental price of the capital assets per unit of time, times the units worked in a year. Unfortunately, data on work units performed by capital assets are notoriously scanty-to say nothing about the monetary evaluation of such services. Thus starts the search for an acceptable proxy, which satisfies the criterion of data availability, to be used as capital input. It mercifully turns out that for certain purposes a proxy is a perfect substitute for capital service flows as long as there is proportionality between the two concepts. In production functions of a multiplicative form, the Cobb-Douglas for instance, the constant term will absorb the proportionality and the elasticities of production will not be affected. However, the proportionality property, although implicitly assumed in most empirical studies, is very difficult to satisfy. The common practice in empirical research on the theory of production has been to measure capital inputs by a stock concept-be it gross or netted by a depreciation factor. Therefore, in the next section I examine the relationship that exists between service flows and the value of the stock of capital, before and after depreciation. The search for an acceptable proxy having failed, Section 3 of the paper is devoted to deriving the ideal service flow input itself from capital stock data that are readily available. In the final section, I provide the empirical vindication of the use of the capital service flow input in production functions. Microeconomic Greek agricultural data are used for this application.

In Defense of a Test of the Linkage Hypothesis

I. Linkages, 335. — II. (Dis)Aggregation, 336. — III. A tempest in a teapot, 337. — IV. Conclusion, 342.

The microeconomics of distribution: A simulation of the farm economy

Abstract A simulation model that incorporates both production and consumption behavior of farm households in Taiwan is presented. The model is used to analyze the effects of policy instruments (price supports, minimum wages, taxes, subsidies, demographic policies, and land and capital redistribution) on the aggregate values of the endogenous variables of the system—the supplies of output and labor, the demands of factors and consumption, income and expenditure—and their distribution among households. The model differs from other simulation models in that it is based on microsimulation, in which the joint distribution of individual household characteristics such as farm-specific prices, initial endowments of land and capital, and numbers of workers and dependents, is explicitly taken into account. As a result, the model is capable of capturing the distributional as well as aggregate impacts of policy changes.

The Empirical Content of Economic Rationality: A Test for a Less Developed Economy

A substantial body of economic theory involves the hypothesis of economic rationality, that is, the hypothesis which assumes that firms have knowledge of their production, cost, and return functions and which implies certain behavior relating to the profit-maximization conditions. The hypothesis of economic rationality has been defended on the basis of a priori theoretical considerations, and it has been supported by casual empirical observations. It has also been challenged (and with special vehemence in the case of less developed countries [LDC]) on the grounds of deductive reasoning and casual empiricism. The profit-maximization conditions of the hypothesis of economic rationality have been tested rigorously. The validity of these tests has in turn been questioned. The purpose of this paper is to suggest a new test for the hypothesis of economic rationality. The hypothesis is then tested in the specific context of an underdeveloped area of Greece with data from a random sample of 430 subsistence farms. It is well known that all firms would have the same quantities of inputs and outputs under some limiting assumptions, namely, if: (a) all firms had the same production function, that is, the same technical knowledge and identical fixed factors; (b) all firms faced the same prices in the product and factor markets; and (c) all firms maximized profits perfectly and instantaneously. The data we utilize for testing the rationality hypothesis are the observable differences in input mixes for firms that produce (roughly) homogeneous outputs. Since we make none of the assumptions above, but instead explicitly assume them not to be fulfilled, we are able to explain, and indeed to measure quantitatively, the extent to which each of assumptions (a), (b), and (c) is violated.