On the use and misuse of profit functions for measuring the price responsiveness of peasant farmers: A comment

The standard profit function approach has been applied successfully in a number of LDCs to measure the price responsiveness of peasant farmers. Yet, various problems afflict this approach including, but not restricted to, the existence of non‐competitive market structures, zero‐valued observations, exclusion of relevant variables, lack of participation in output and/or input markets, and endogeneity of input and/or output prices. The impact of these problems on estimation results, however, can be minimised through modifications and adaptations of the standard approach, better specification of the underlying technology, and the use of selected functional forms.