7 on the basis of expected future prices. Assume farmers' production decisions are based on informal decisions without assigning any formal decision making mechanism. Nerlove (1958) also stated that acreage planted under a certain crop in the current period is a function of area planted in the previous period and the price of the crop in the previous period assuming a log- linear relationship between variables as represented by equation (2.1).
Log(A
t
) = α + alog(A
t-1
) + blog(P
t-1
) + cZ
t
+ t) Where At acreage used at time
t At acreage used at time t Pt-1
=crop
price at time t Zt
= other exogenous factors affecting agricultural supply. This study is based on further extensions rather than direct application of the model since direct estimation of the model may yield biased and inconsistent estimates since supply of output is determined simultaneously with input demand equations (Askari
and Cummings, 1977).
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