AEC 608, Economics of Agricultural Production

Dr. Greg Traxler   C304, 844-5619, gtraxler@ag.auburn.edu
Office hours:   MTWHF 3:00-4:30 and by appointment.

TEXT: The Economics of Production - Bruce R. Beattie and C. Robert Taylor.  

USEFUL PRODUCTION ECONOMICS REFERENCE TEXTS:
Theory:
Henderson, J.M. and R.E. Quandt. Microeconomic Theory: A Mathematical Approach.
    McGraw-Hill, N.Y., 1980.

Mathematics:
Chiang. A.C. Fundamental Methods of Mathematical Economics. Third Edition,
    McGraw-Hill, N.Y., 1984.  

Applied production analysis:
Heady, E.O., and J. Dillon. Agricultural Production Functions.The Iowa State
    University Press, Ames, Iowa, 1961. 
Hexem, R.W., and E.O. Heady. Water Production Functions for Irrigated Agriculture.  
    The Iowa State University Press, Ames, Iowa, 1978.
Dillon, J., and J.R. Anderson. The Analysis of Response in Crop and Livestock 
    Production. Pergamon, N.Y.

Duality Theory:
Chambers, R.G.. Applied Production Analysis: A Dual Approach. Cambridge: Cambridge 
    University, Press, 1988.
Berndt, E.R. The Practice of Econometrics: Classic and Contemporary. New York: 
    Addison-Wesley Publishing, 1991. Chapters 3, 9.

Summary: The purpose of this class is to introduce you to the type of production 
     theory that is used by agricultural economists in conducting research. This is 
     primarily a course in the theory of the firm. We will use mathematics to 
     formally examine what economists mean when they speak about profit-maximizing 
     behavior.  The main objectives are: (a) understanding the framework for 
     examining production technology (the production function), (b) examining the
     implications of microeconomic theory for output supply and input demand 
     (c) introduce duality theory concepts.  My approach to teaching the course 
     is to help you become familiar with the Beattie and Taylor textbook, so
     lectures will follow the textbook closely.  Readings of applied production 
     economic studies will be used to supplement the text material.

COURSE OUTLINE

 I.	Production Function and its Properties
II.	Economic Aspects of Production
IV.	Profit and Cost Functions - Duality
 V.	Multiple Products
VI.	Selected Topics and Readings.

GRADING

There will be two exams, a midterm and a final, of equal weight, some homework 
assignments, and a term paper.	The weights used in calculating the final grade 
are: Exams 70% and Paper 30%.

TERM PAPER

The class paper can involve 1) original theoretical or empirical research, 
2) a review of literature or 3) a research proposal. 

Term paper option #1: Original Research Possibilities:

   ?   Formulate and estimate an econometric model of supply.
       (Supply a function of prices and other economic variables.)

   ?   Econometric estimation of a production function (in physical units) 
       with an accompanying economic analysis. (I may be able to help you 
       locate a data set.) 

Term paper option #2: Review of Literature Topic Possibilities:

For this type of paper, the student should read and discuss 8-12 research 
articles.  Examples of possible subject areas are:

    -Estimation of the Elasticity of Supply for a Particular Commodity
    -Incorporation of Government Policy Provisions in Econometric Models
    -Application of Duality Theory to Production Economics
    -Incorporation of Risk and Uncertainty into Econometric Models
    -The Economic Value of Response Information
    -Measuring technical change
    -Returns to size and scale in agriculture
    -Any other topic with approval

The objective of a literature review is to summarize what other researchers 
have learned about the problem addressed in your paper.  I have put a few 
literature review papers on reserve in the library.  One way to proceed on 
a literature review would be:

1.  Decide on an interesting or important problem area.
2.  Identify a large number of papers that appear to be related to your problem.  
    This is done primarily by using library reference resources, but I have also 
    put a "Reference list file" on reserve in the library.  
3.  Skim these papers to cull those that are not directly related to your topic.
4.  Group the remaining papers into subtopic groups and select a subtopic to focus on.  
    I am assuming that you are like me and tend to begin with too broad of a subject 
    area.
5.  Carefully read the papers and summarize each one, tying like papers together 
    in the write-up.
6.  The goal of the literature review is to synthesize the findings and make some 
    conclusions about the existing state of knowledge in the problem area.  
7.  Identify aspects of the problem about which little research has been done.

Term paper option #3: Research proposal:

This may or may not be related to your thesis or assistantship project. A 
suggested outline is the following. This differs from option 1) by not 
requiring that any empirical work be completed, and differs from option 
2) by requiring more detailed model development, but an abbreviated literature 
review.

I. Title of the research project

II. Introduction
    A.  Statement of the problem
    B.  A brief survey of studies that have examined the problem. 
    C.  State the specific objective of the research project. What do you 
        expect to contribute to existing knowledge with your study?

III. Theoretical framework
    A.	Develop a behavioral model or conceptual framework that assists in 
        understanding the problem.
    B.	State the hypotheses to be tested. 

IV. Empirical analysis
    A.  Summarize data that would be required to test the theoretical model 
        or for completing a quantitative economic analysis. Comment on possible 
        sources of data.
    B.  Present an empirical specification of the behavioral model and restate 
        the hypotheses in terms of this empirical model.

V. References
    AEC 608 Reading List		

Background
Heady, E.O. Economics of Agricultural Production and Resource Use. Prentice-Hall, 
    1952. Chpt. 2
Shumway, C. Richard. "Production Economics:  Worthwhile Investment?" Texas 
    Agricultural Experiment Station Technical Article No. 25492.

On writing
Brorsen, B.W. "Observations On The Journal Publication Process." North Central 
    Journal of Agricultural Economics. Vol. 9(2):315-321, 1987.

Literature reviews
Bravo-Ureta, B.E. and A.E. Pinheiro. "Efficiency Analysis of Developing Country 
    Agriculture: A Review of The Frotier Function Literature." Agr. and Resource 
    Econ. Rev., 23 (Oct. 1994):194-99.
Fox, G., A. Weersink, G. Sarwar, S. Duff, and B. Deen. "Comparative Economics of 
    Alternative Agricultural Production Systems: A Review." Northeast J. of Agr. 
    and Resource Econ. 20(April 1991):124-142.
Hallam, J.A. "Economies of Scale and Size in Agriculture." Review of Agricultural
    Economics, (June 1991).
Just, R.E. "Discovering Production and Supply Relationships: Present Status and 
    Future Opportunities." Review of Marketing and Agricultural Economics 61 
    (April 1993):11-40.
MacMillan, J.A., A. Kolody, R.M.A. Lyons and P.B.E. McVetty. "Evaluating Producer 
    Returns to WGRF Research Project Investments." Canadian Journal Agr. Econ. 
    38:1(March 1990):123-36.   (Example of how a concise literature review is 
    written)
Sawhill, I.V. "Poverty in the U.S.: Why is it so Persistent?" Journal of Econ. 
    Literature. 26:3(Sept. 1988):1073-1119. (Example of exhaustive literature 
    review)

Primal Approaches
Dillon, J., and J.R. Anderson. The Analysis of Response in Crop and Livestock 
    Production. Pergamon, N.Y.
Doll, J.P. "On Exact Mulitcollinearity and the Estimation of the Cobb-Douglas 
    Production Function." Amer. J. Agr. Econ. 56 (1974):556-63.
Epplin, F., S. Bhide and E.O. Heady. "Empirical Investigationso fGBeef Gain 
    Roughage-Concentrate Substitution." Amer. J. Agr. Econ. 82 (August 1980)
    :468-77.
Frank, M.D., B.R. Beattie, and M.E. Embleton. "A Comparison of Alternative Crop 
    Response Models." Amer. J. Agr. Econ.. 72(August 1990):597-603.
Griffin, R.C., J.M. Montgomery, and M. E. Rister. "Selecting Functional Form in 
    Production Function Analysis." Western J. Agr. Econ.. 12(2):216-227, 1987.
Griliches, Z. "Research Expenditures, Education, and the Aggregate Agricultural 
    Production Function."  The American Economic Review. 54(6):961-974, 1964.
Heady, E.O., and J. Dillon. Agricultural Production Functions.The Iowa State 
    University Press, Ames, Iowa, 1961. 
Hexem, R.W., and E.O. Heady. Water Production Functions for Irrigated Agriculture.  
    The Iowa State University Press, Ames, Iowa, 1978. Chapters 1-3.
Kerr. W.A. "Genetic-Based Technological Chnage in Beef Cattle." West. J. Agr. 
    Econ., 9 (July 1984):14-28.
Mundlak, Y. "Empirical Production Function Free of Management Bias." J. Farm Econ., 
    43(1961):44-56.
Perrin, R.K. "The Value of Information and The Value of Theoretical Models in 
    Crop Response Research."  Amer. J. Agr. Econ., 58  (1976):55-61.
Swanson, E.R. "The Static Theory of The Firm and Three Laws of Plant Growth." 
    Soil Science, 88(1963):338-343.
Swanson, E. R., C. R. Taylor, and L. F. Welch. "Economically Optimal Levels of 
    Nitrogen Fertilizer for Corn:  An Analysis Based on Experiment Data, 
    1966-1971." Illinois Agricultural Economics. (1973):16-25.
Traxler, G., J. Falck-Zepeda, I. Ortiz-Monasterio, and K. Sayre. "Production 
    Risk and the Evolution of Varietal Technology." American Journal of 
    Agricultural Economics, 77:1(February 1995):1-7.
Zellner, A., J. Kmenta and J. Dreze. "Specification and Estimation of Cobb-Douglas 
    Production Function Models." Econometrica 34 (Oct. 1966):784-95.

Economic Aspects of Production
Tauer, L. W. and H. M. Kaiser.  "Negative Milk Supply Response Under Constrained 
    Profit Maximizing Behavior." Northeast Journal Agr. and Resource Econ.  
    17(1988):111-17.
Traxler, G. and D. Byerlee. "A Joint-Product Analysis of the Evolution and 
    Adoption of Modern Cereal Varieties in Developing Countries."  Amer. J. Agr. 
    Econ. 75(Nov. 1993).
Traxler, G. and D. Byerlee. Crop Management Research and Extension: The Products 
    and Their Impact on Productivity. CIMMYT Economics Paper No. 5. Mexico, D.F.:
    CIMMYT, 1992.

Profit and Cost Functions - Duality
Baffes, J. and U. Vasavada. "On the Choice of Functional Forms in Agricultural 
    Production Analysis." Applied Economics. 21(1989):1053-61.
Binswanger, H.P. "A Cost Function Approach to the Measurement of Elasticities 
    of Factor Demand and Elasticities of Substitution." Amer. J. Agr. Econ. 
    56:2(1974):377-86.
Huffman, W.E. and R.E. Evenson. "Supply and Demand Functions for Multiproduct 
    U.S. Cash Grain Farms: Biases Caused by Research and Other Policies." Amer.
    J. Agr. Econ. 71:3(1989):761-73.
Melton, B.E. and W. Huffman. "Beef and Prok Packing COsts and Input Demands: 
    Effects of Unionization and Technology." Amer. J. Agr. Econ. 77 (August 1995)
    :471-85.
Neiswiadomy, M.L. "Input Substitution in Irrigated Agriculture in the High 
    Plains of Texas, 1970-80." West. J. Agr. Econ. 13:1(1988):63-70.
Schumway, C.R. and J. Lim. "Functional Form and U.S. Agricultural Production 
    Elasticities." Journal Agr. and Resource Econ. 18(Dec 1993):266-76.
Stranahan, H.A. and J.S. Shonkwiler. "Evaluating the Returns to Postharvest 
    Research in the Florida Citrus-Processing Subsector." Amer. J. Agr. Econ.70:
    1(1988):88-94.
Taylor, C.R. "Duality, Optimization and Microeconomic Theory: Pitfalls for the 
    Applied Researcher." West. J. Agr. Econ. 14:2(1989):213-22.
Thompson, G. D. "Choice of Flexible Functional Forms:  Review and Appraisal." 
    West. J. Agr. Econ.. 13(2):169-183, 1988.
Young, D.L., R.C. Mittelhammer, A. Rostanizadeh, and D.W. Holland.  "Duality 
    Theory and Applied Production Economics Research:  A Pedagogical Treatise." 
    Washington State University Cooperative Extension. 1987.
Yuhn, K. "Growth and Distribution: A Test of the Induced Innovation Hypothesis 
    for the Korean Economy." Applied Econ. 23 (1991

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