Why Are Estimates of Agricultural Supply Response so Variable?

Estimates of the response of agricultural supply to movements in expected price display curiously large variation across crops, regions and time periods. We argue that this anomaly may be traced, at least in part, to the statistical properties of the commonly-used econometric estimator, which has infinite moments of all orders and may have a bimodal distribution. We propose an alternative minimum-expected-loss estimator, establish its improved sampling properties, and argue for its usefulness in the empirical analysis of agricultural supply response. Acknowledgements: We thank the Co-Editor and referees for constructive suggestions, but we alone should be blamed for remaining inadequacies. Parts of this work were completed at the University of Chicago, whose hospitality is gratefully acknowledged. Particular thanks go to Arnold Zellner, who provided exceptionally useful input. Participants at meetings of the Econometric Society and the American Agricultural Economics Association provided helpful comments, as did Ed Leamer, Doug McManus and Marc Nerlove on a long-ago draft. Asad Zaman brought the problem treated in this paper to our attention. We are grateful for support from the National Science Foundation, the Sloan Foundation, the International Food Policy Research Institute, and the University of Pennsylvania Research Foundation. See for example Braulke (1982), Gardner (1993), Just (1993), and Tomek and Myers 1