Multiproduct Production Choices and Policy Response

A restricted profit function model of California agriculture is specified and estimated subject to prior information provided by economic theory. Symmetry, homogeneity, and convexity of the profit function are maintained in the estimation. Parameter estimates and elasticities are presented for four input and 10 output equations. Tests of the hypotheses of nonjointness in inputs and Hicks-neutral technical change in variable inputs and outputs are rejected. The impacts of decoupling agricultural program payments are examined. Key words: decoupling, multiproduct profit function, policy response. Frequently of great concern in U.S. farm policy debates is the supply responsiveness of major agricultural commodities (especially those be-ing produced under provisions of existing farm programs) to changing economic and political conditions. Although the object of consider-able empirical research, much uncertainty re-mains about supply responsiveness (both di-rect and indirect) and about the impacts of that responsiveness on input markets. If we are to anticipate the geographic distribution of ben-efits and costs from changes in government policies, it is important that analysis be highly disaggregated geographically. If we are to an-ticipate the distribution among various types of producers, such as those producing different combinations of commodities, it is important that the analysis also be commodity specific. Data limitations frequently restrict the ex-tent of feasible geographic and output-input disaggregation. Reliance on economic theory and modestly restrictive assumptions about the technology (such as twice-continuous differ-entiability) can sometimes help by permitting The authors are, respectively, an assistant professor of agricultura