Examining crop price effects on production decision and resource allocation: an ex-ante approach

Dong Hee Suh, Charles B. Moss

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

This article examines the output price effects on the US crop production, employing an ex-ante approach to the differential systems of input demand and output supply. The estimation results of the differential input demand show that the expansion of crop production leads to an increase in acreage (i.e. extensive margin) and a proportional rise in input usage improving yield per acre (i.e. intensive margin). The substitutable relationship between fertilizer and land supports that crop producers have an option to choose either intensive or extensive margin in response to changes in their relative prices. In addition, the estimation results of the differential output supply highlight that the composition of crop supply can be altered by changes in ex-ante crop prices. The estimation results suggest that crop producers substitute corn supply for the supply of cotton, wheat and soybeans or vice versa. Based on the estimated elasticities, the decompositions of profit-maximizing input demand are conducted, which reveals that a change in ex-ante crop prices is associated closely with resource reallocation.

Original languageEnglish
Pages (from-to)2909-2919
Number of pages11
JournalApplied Economics
Volume50
Issue number26
DOIs
Publication statusPublished - 2018 Jun 3

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Keywords

  • corn
  • cotton
  • Differential system
  • extensive margin
  • intensive margin
  • soybeans
  • wheat

ASJC Scopus subject areas

  • Economics and Econometrics

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