Investigating the Cross and Substitution Elasticity of Energy Input’s Demand in Agricultural Sector

M. Azamzadeh Shooroki*, S. Khalilian(Ph.D.) ,
S.A.Mortazavi (Ph.D.) 
Abstract
In this study, by simultaneous estimates of translog cost functions and the production inputs demanded by the ISUR method, farmers’ sensitivity was determined to be more critical than the price changes of these inputs and substitutions in the agriculture sector. Data for this investigation were collected, from the Statistics Center, the Central Bank, and the country's energy balance sheet during 1976-2007. The results obtained from the cost function showed that the relative price elasticity of demand is negative, and low elasticity is compatible with economic theories. Also, cross price elasticity between labor and energy inputs is positive, demonstrating the substitution between them. Also, the cross price elasticity of price between capital and energy inputs is positive. This confirms the substitution relationship between capital and energy inputs. In other words, increased energy cost leads to a preoccupation with using advanced machinery to improve energy efficiency. So when government increases the energy price by using capital facilities to encourage farmers to use advanced machinery, it has been proven necessary to accept these changes for productivity improvement and the reduction of energy consumption.

JEL Classification: Q43, Q48, C22, D24

Keywords:
Energy, Translog Cost Function, Input Demand Function, ISUR Method, Elastisity