Modeling an Aggregate Agricultural Panel with Application to U.S. Farm Input Demands

A recent class of factor demand models is discussed and used to analyze U.S. state-level production data. The approach accommodates output risk, heterogeneous technologies, technological change, endogenous variables, aggregation across agents, and more general flexible functional forms than previous models. We find the approach to flexibility found in the consumer literature empirically useful in the analysis of producer behavior as our results suggest that standard flexible models that have been ubiquitous in agricultural and industrial research are strongly rejected here in favor of a more general and flexible specification. Further, there is substantial heterogeneity of conditional own-price elasticities across states.