DYNAMIC INTERRELATED DEMAND FUNCTIONS FOR FACTORS OF PRODUCTION AND THE AGGREGATE PRODUCTION FUNCTION IN UNITED KINGDOM AGRICULTURE

Taking the price situation as given in product and factor markets, a non-linear differential equation model of gross output, employment, capital accumulation, and gross input for united Kingdom agriculture is derived by incorporating internal adjustment cost functions into the representative decision-maker's objective function, and estimated using a discrete approximation. The results are consistent with efficient use of resources, but further incentives for capital investment and a greater exodus of labour could upset this. Adjustment costs as estimated account for 2.6 per cent of the value of output; those associated with net investment for 1.8 per cent, and those associated with employment and gross input for 0.57 and 0.23 per cent respectively.