(w2), the volume of milk materials (m) and the level of the capital stock (k). A time trend (t) was
added to the complement of variables in both systems and a simple first-order autocorrelated error
structure was also appended to each equation of the system. With the exception of the trend
variable all variables are normalised to 1987=1. The functional form was assumed to be translog.
The estimator used in both cases was maximum likelihood with cross-equation symmetry
restrictions and price homogeneity imposed11.
The data are available from 1961 to 1987 and, apart from the milk output variable (m), are
obtained from the Census of Industrial Production compiled by the Central Statistics Office and
maintained in a databank by the Economic and Social Research Institute, Dublin12. The milk raw
material (m) is got from the Central Statistics Office Irish Agricultural Output table with an
adjustment for farm home consumption. While this aggregate includes milk that is used for both
further processing and final consumption, the vast bulk of farm output is processed and hence it is
felt the variable we use is a very good proxy for the true variable.
Detailed coefficient estimates are given in Table 1. The log-likelihood from estimation of the
system (15)(a)-(15)(d) was estimated as 279.37 and was found to be 286.86 for the system
(15)(a), (b), (c) and (16) and -2*(286.86-279.37) = 15.7 is distributed as a χ2 statistic with 6
degrees of freedom. Critical values at the 1%, 2.5% and 5% are respectively 16.8, 14.4 and 12.6
respectively and thus we cannot reject the null-hypothesis that the cooperatively-managed dairy
processing sector behaves as a virtual profit maximiser.
10 An alternative test is proposed by Kulatilaka (1985) which involves testing whether pm differs from pmv at every
datapoint.
11 The actual computational routine employed was the TSP 4.3 LSQ estimator.
12 From 1961 to 1973 the dairy processing sector is obtained as ISIC category “creamery butter, cheese, condensed
milk, chocolate crumb, ice cream and other edible milk products” and from 1973 to 1987 the sector is given by
NACE code 413 “manufacture of dairy products”.
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