Factor Substitution in Dairy Farming: A Comparison of Allen and Morishima Elasticities

This paper uses a non-homothetic translog cost function to calculate Allen and Morishima elasticities of substitution (AESs and MESs) based on panel data for 11 Vermont dairy farms over a 24 year period. The results indicate that there is a substantial difference between the computed AESs and MESs. The estimates show that the AESs overstate both the substitution and complementary relationships among the inputs. Overall, the MES measures suggest that the dairy farm technology is quite flexible.