Modeling Resource Allocation Decisions in the U.S. Agricultural Sector
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We model the U.S. agricultural sector as the producer of multiple goods and services, and we model its resource allocation decisions within a framework based on the theory of multiproduct firms. We estimate an input demand allocation model using maximum likelihood method. The results show that intermediate goods, capital, and labor are all complementary to land, which makes sense in the real agricultural production process.
Intermediate goods are substitutes to capital, while labor is complementary to land. Due to the overly aggregated output variables, price changes of output variables do not have significant impact on the demand for inputs, except one case in which 1% price increase of other farm-related products will lead to 0.036% change in the demand for land.