Perverse supply response in agriculture: the importance of produced means of production and uncertainty
The Law of Supply is one of the simplest and most powerful predictions of neo-classical economic theory. However, like all theories, it is based upon a number of assumptions, departure from which may jeopardize its predictions. This book investigates such departures and the possibility that they may result in 'perverse' supply response in agriculture. Two areas in particular are examined, concerning uncertainty and Sraffian produced means of production. Insufficient evidence is found to support the argument that uncertainty and risk aversion lead to perversity, at least in U.S. agriculture; while, although an apparently perverse aggregate supply response is identified in U.K. agriculture, this arises from failure to take account of produced inputs. Thus, the overall conclusion drawn from this work is that farmers, at least in developed countries, do respond normally to price incentives.
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Produced inputs aggregation and perversity
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absolute risk aversion aggregate output aggregate supply response aggregator function Agricultural Economics agricultural supply response analysis assumed assumption aversion utility function Baron cereal certainty equivalent profit ceteris paribus chapter Cobb-Douglas compound feed convexity derived deterministic Diewert Divisia index duality economic theory economists effect empirical Envelope Theorem equation equivalent profit function estimated expected utility maximization farm farmers feedgrain/seed feedingstuffs five commodity model flexible functional forms homothetic Hotelling's Lemma income effect increase index numbers indirect certainty equivalent input prices labour Law of Supply livestock MAPS model marketed surplus means of production neoclassical theory order conditions output price output supply outputs and inputs perverse supply response price index produced inputs produced means production function production technology production under uncertainty profit maximization quantity quasi-CES regularity properties risk aversion risk aversion utility section 4.2 sectors Sraffa Sraffian supply and input supply curve theoretical theory of production translog U.S. agriculture uncertainty and risk utility function