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

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Abstract
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.