Accounting for Heterogeneity in Multicrop Micro‐Econometric Models: Implications for Variable Input Demand Modeling

This article aims to show that if the farm sample under consideration is characterized by significant heterogeneity, recovering output‐specific input uses or modeling farm‐level input uses may be more complicated than previously recognized. The article theoretically investigates the problems implied by farm heterogeneity in input allocation equations and multicrop econometric models, proposes an empirically tractable solution for overcoming these problems, and assesses the empirical relevance of the theoretically identified problems. The results demonstrate that heterogeneity matters, but that the revealed heterogeneity bias has a limited impact on the empirical results.