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The Theoretical Framework and Methodology to Estimate the Farm Labour and Other Factor-Derived Demand and Output Supply Systems. Factor Markets Working Document No. 44, May 2013

Tocco, Barbara and Bailey, Alastair and Davidova, Sophia (2013) The Theoretical Framework and Methodology to Estimate the Farm Labour and Other Factor-Derived Demand and Output Supply Systems. Factor Markets Working Document No. 44, May 2013. [Working Paper]

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    Abstract

    This paper provides a conceptual framework for the estimation of the farm labour and other factor-derived 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 cost-share 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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    Item Type: Working Paper
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > agriculture policy
    EU policies and themes > Policies & related activities > employment/labour market > labour/labor
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Centre for European Policy Studies (Brussels) > Factor Markets Working Papers
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 18 Dec 2014 13:13
    Number of Pages: 18
    Last Modified: 18 Dec 2014 13:13
    URI: http://aei.pitt.edu/id/eprint/58564

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