Investigating Budget Constraints in Wheat Production in East Azerbaijan Province: Applying a Generalized Functional Form of Indirect Production Function

Pishbahar, Esmaeil; Abedi, Sahar; Sarbaz, Ameneh; Moazen, Vahid

Investigating Budget Constraints in Wheat Production in East Azerbaijan Province: Applying a Generalized Functional Form of Indirect Production Function

Document Type : Research Paper

Authors

Abstract

Developing and specifying appropriate and practical models for consumption and production economic is one of the most important tasks of applied economics. The present study examines the budget constraints of wheat production in East-Azerbaijan Province by using the "Lewbel" functional form for indirect production function approach. This functional form is generalized functional form of two "Translog" and "Aalmost Ideal Supply System" (AISS) functional form. The data of this research was collected with reference to “Iranian Agricultural Organization” and “agriculture statistical yearbook” for the period 1991-2012. Findings show that using all three functional forms, i.e. Translog, Almost Ideal Supply System (AISS) and Lewbel, Lagrange multipliers are greater than one, which indicates the budget constraints or accessible financial resource constraints for farmers. Budget constraint has caused an output 45.30 percent lower than the desired level. Rate of technical change is almost equal to zero; implying that on average, technology did not change during the period of studying. All of direct inputs-demand elasticities for irrigated wheat crop are negative and smaller than one, it shows negative relationship between inputs price and quantity. According to economic theory, cost elasticities are positive so that, there is direct relationship between inputs quantity and cost. The consistency of above findings with economical theories confirms the effectiveness of the Lewbel model.

Keywords