Publication

Agricultural activities simultaneously produce good (livestock and crops) and bad outputs (chemical runoffs).  Costs functions are most useful to model multiple-output technologies and measure cost elasticities or how costs change in percentage with respect to a one percent change in the level of a particular output.  A translog cost function is used to evaluate the cost associated with reduction of chemical runoff and how this cost is influenced by the scale of crop and animal production. The results show that reducing runoff entails increasing costs and that these costs decrease with the level of crop production, but are unaffected by the level of animal production. The estimates of the cost elasticities of Best Management Practices (BMPs) were all positive, suggesting that BMPs are costly to adopt, but many have large standard errors which imply that the true elasticities can be much lower or much higher. Also, the cost elasticities decrease with the scale of crop production for most BMPs whereas the scale of animal production has the opposite effect for crop rotation and herbicide control practices. Our results reaffirm that there are economies of size in production.