Farm price responsiveness and the choice of functional form: An application to rice cultivation in West Malaysia

The estimated responsiveness of farmers to changes in the prices of output or inputs is in general very sensitive to the econometric model used. Using cross-section survey data for farms in marginal rice-growing districts in West Malaysia price elasticities based on estimated input demand equations derived from a quadratic restricted profit function were found to be superior to those derived from translog or Cobb-Douglas production functions or from a translog restricted profit function. The Cobb-Douglas production function is restrictive and should be used sparingly. Restricted profit functions are only believable if the available price data are of high quality.