Elasticity of Substitution and Farm Heterogeneity in TFP and Size: A Theoretical Framework and Empirical Application to Australian Broadacre Farms
No hay miniatura disponible
Fecha
Autores
Título de la revista
ISSN de la revista
Título del volumen
Editor
Resumen
Descripción
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.