Separability of fixed inputs in differential systems

Abstract

This paper develops a differential demand system which involves fixed production inputs
without the assumption that these are separable (strongly or weakly) from the perfectly variable
inputs. This allows the allocation decisions for the perfectly variable inputs to depend on the
intensity of use of the fixed inputs. It also allows testing for separability of fixed inputs through
simple parameter restrictions. The differential input demand system has been applied to the
agricultural sector in Greece for the period 1961-97. The null hypothesis of separability between
Land and Capital (fixed inputs) and all the variable inputs have been decisively rejected
suggesting that the intensity of use of Land and Capital do affect the allocation decisions for
the variable inputs.