ESTIMATION OF AUSTRALIAN WOOL AND LAMB PRODUCTION TECHNOLOGIES UNDER UNCERTAINTY - AN ERROR-COMPONENTS APPROACH

A model of producer behavior, which explicitly accounts for both outpu t price and production uncertainty, is formulated and estimated. If th e production technology is multiplicatively separable in its determini stic and stochastic components, then the expected utility maximization problem implies cost minimization for planned or expected output. Con sequently, our empirical model of three lamb- and wool-producing secto rs in Australia involves the estimation of a system of input cost shar e and cost equations whose disturbances have an error-components struc ture. The empirical results are evaluated in terms of input demand ela sticities, and estimates of the stochastic components of production ar e presented.