Elasticity of Substitution and Farm Heterogeneity in TFP and Size: A Theoretical Framework and Empirical Application to Australian Broadacre Farms

Cp Sheng

No 165874, 2014 Conference (58th), February 4-7, 2014, Port Macquarie, Australia from Australian Agricultural and Resource Economics Society

Abstract: This paper develops a theoretical model to examine the relationship between the input elasticity of (technical) substitution and both farm total factor productivity and size. In the presence of ongoing technical change and its factor bias, the ‘income effect’ arising from farms’ cost minimizing behaviour enables them to increase productivity by saving inputs or, through the dual equivalent, enlarging farm size. As such, farms with higher elasticities of substitution tend to grow larger and become more productive, which provides a new mechanism through which farm heterogeneity in productivity growth can be examined. Empirical evidence from Australian broadacre agriculture supports this theory and points to important policy implications.

Keywords: Financial Economics; Production Economics; Productivity Analysis (search for similar items in EconPapers)
Pages: 22
Date: 2014
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:aare14:165874

DOI: 10.22004/ag.econ.165874

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