Entropy Estimation of Disaggregate Production Functions: An Application to Northern Mexico

This paper demonstrates a robust maximum entropy approach to estimating flexible-form farm-level multi-input/multi-output production functions using minimally specified disaggregated data. Since our goal is to address policy questions, we emphasize the model’s ability to reproduce characteristics of...

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Main Authors: Richard E. Howitt, Siwa Msangi
Format: Article
Language:English
Published: MDPI AG 2014-03-01
Series:Entropy
Subjects:
Online Access:http://www.mdpi.com/1099-4300/16/3/1349
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author Richard E. Howitt
Siwa Msangi
author_facet Richard E. Howitt
Siwa Msangi
author_sort Richard E. Howitt
collection DOAJ
description This paper demonstrates a robust maximum entropy approach to estimating flexible-form farm-level multi-input/multi-output production functions using minimally specified disaggregated data. Since our goal is to address policy questions, we emphasize the model’s ability to reproduce characteristics of the existing production system and predict outcomes of policy changes at a disaggregate level. Measurement of distributional impacts of policy changes requires use of farm-level models estimated across a wide spectrum of sizes and types, which is often difficult with traditional econometric methods due to data limitations. We use a two-stage approach to generate observation-specific shadow values for incompletely priced inputs. We then use the shadow values and nominal input prices to estimate crop-specific production functions using generalized maximum entropy (GME) to capture individual heterogeneity of the production environment while replicating observed inputs and outputs to production. The two-stage GME approach can be implemented with small data sets. We demonstrate this methodology in an empirical application to a small cross-section data set for Northern Rio Bravo, Mexico and estimate production functions for small family farms and moderate commercial farms. The estimates show considerable distributional differences resulting from policies that change water subsidies in the region or shift price supports to direct payments.
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spelling doaj.art-64fa902d1df84ac1ae9de00384e1fcfe2022-12-22T04:22:59ZengMDPI AGEntropy1099-43002014-03-011631349136410.3390/e16031349e16031349Entropy Estimation of Disaggregate Production Functions: An Application to Northern MexicoRichard E. Howitt0Siwa Msangi1Department of Agricultural and Resource Economics, University of California, Davis 95616, CA, USAInternational Food Policy Research Institute, Washington, DC 20004, USAThis paper demonstrates a robust maximum entropy approach to estimating flexible-form farm-level multi-input/multi-output production functions using minimally specified disaggregated data. Since our goal is to address policy questions, we emphasize the model’s ability to reproduce characteristics of the existing production system and predict outcomes of policy changes at a disaggregate level. Measurement of distributional impacts of policy changes requires use of farm-level models estimated across a wide spectrum of sizes and types, which is often difficult with traditional econometric methods due to data limitations. We use a two-stage approach to generate observation-specific shadow values for incompletely priced inputs. We then use the shadow values and nominal input prices to estimate crop-specific production functions using generalized maximum entropy (GME) to capture individual heterogeneity of the production environment while replicating observed inputs and outputs to production. The two-stage GME approach can be implemented with small data sets. We demonstrate this methodology in an empirical application to a small cross-section data set for Northern Rio Bravo, Mexico and estimate production functions for small family farms and moderate commercial farms. The estimates show considerable distributional differences resulting from policies that change water subsidies in the region or shift price supports to direct payments.http://www.mdpi.com/1099-4300/16/3/1349entropyestimationagriculturewater demandeconometrics
spellingShingle Richard E. Howitt
Siwa Msangi
Entropy Estimation of Disaggregate Production Functions: An Application to Northern Mexico
Entropy
entropy
estimation
agriculture
water demand
econometrics
title Entropy Estimation of Disaggregate Production Functions: An Application to Northern Mexico
title_full Entropy Estimation of Disaggregate Production Functions: An Application to Northern Mexico
title_fullStr Entropy Estimation of Disaggregate Production Functions: An Application to Northern Mexico
title_full_unstemmed Entropy Estimation of Disaggregate Production Functions: An Application to Northern Mexico
title_short Entropy Estimation of Disaggregate Production Functions: An Application to Northern Mexico
title_sort entropy estimation of disaggregate production functions an application to northern mexico
topic entropy
estimation
agriculture
water demand
econometrics
url http://www.mdpi.com/1099-4300/16/3/1349
work_keys_str_mv AT richardehowitt entropyestimationofdisaggregateproductionfunctionsanapplicationtonorthernmexico
AT siwamsangi entropyestimationofdisaggregateproductionfunctionsanapplicationtonorthernmexico