Asset Fixity under State-Contingent Production Uncertainty

Asset fixity of inputs is tested under state-contingent production uncertainty. We construct a general dynamic dual model for U.S. agriculture that allows tests for full variability and strict fixity to be performed for each input as well as tests for functional form. We estimate the model using a generalized Box-Cox functional form. Most test results are robust to functional form, but test results of fixity are sensitive for two of four inputs. The generalized Leontief is found to be significantly preferred to the translog and normalized quadratic functional forms for the dynamic model. With this functional form, family labor exhibits strict fixity, while land, capital, and hired labor exhibit quasi-fixity. Production uncertainty has limited impacts on investment decisions for quasi-fixed inputs