Duality, choice of functional form and peasant supply response in Ethiopia

Abstract

This study assesses the responsiveness of peasant farmers, and the extent to which empirical estimates and their inferences are sensitive to estimation techniques using farm level survey data from Ethiopia.While non-nested hypotheses tests provide no clear choice among alternative functional forms, the Cobb-Douglas and the quadratic models are preferred to the generalized Leontief and Translog on the basis of statistical performance and consistency with theory.The results indicate that farmers respond only modestly to price incentives.The own-price output supply elasticity is very low and output supply is not responsive to fertilizer prices or the wage rate.Non-price factors are far more important in affecting production and resource use than price incentives.The results are robust to functional forms and to whether the primal or dual approach is used to estimate elasticities.The results underscore the need to strengthen market incentives through effective policies that will improve farmers' access to land and credit, public investment in roads and irrigation.