The Implications of the Adoption of Alternative Production Practices on the Estimation of Input Productivity in Agriculture

Abstract

This paper explores the implications of a misspecification of the production function on the use of factor inputs in the context of the adoption of an alternative production practice (a technological innovation) designed to mitigate the impact of agricultural production on human health and the environment. It is demonstrated that if the level of use of some inputs is considered rather than their consumptive use (i.e., the actual amount used by a plant), the productivity of the input is inaccurately measured. It is also demonstrated that an aggregate production function approach can lead to overestimation of the value of the marginal product of an input due to the frequently implicit assumptions that the output supply, output demand, and fertilizer demand are infinitely price elastic. The implications of the results are important for determining the optimal use of inputs such as fertilizer and pesticides which have known adverse impacts on the environment and human health.