This study develops a microeconometric model of specialized dairy farms in the Moscow region using panel data over the period 1995¿2001. The model is used to analyze the role of subsidies on profit as well as input and output allocation. Theoretical conditions for short-term profit maximization are not rejected by the data. Differences between farms allow for a fixed-effect specification. The dairy producers in the region demonstrate a low responsiveness to market signals, but technology change becomes important. Labor, land, and livestock had low shadow prices. Although subsidies have a distorting effect on the input¿output mix, this study shows they relieve the credit constraints on dairy farms and have an important positive influence on farm profit.
- functional forms