or defective materials. Alternatively, it could raise production costs if it has no impact on meat
or poultry yields and/or requires more workers to monitor operations.
Equation (1) links total plant production costs (C) to the prices of meat or poultry and
other materials, labor, and capital (P), pounds of output (LB), a food safety technology index (T),
and effort devoted to performing sanitation and process control tasks (S).
C = C (P, LB, T, S)
Specification of the Empirical Model
In the empirical analysis, competitive factor markets are assumed and a translog cost function is
used with food safety technology and effort entering the analysis separately. To ensure
comparability, plant costs were evaluated separately for each of the industries - meat and poultry
slaughter and meat processing -- because different industries have different product mixes,
processing technologies, and other characteristics.
Economists have generally used one of two types of translog cost functions. Morrison
(1999a, 1999b) and many others have used a multi-product cost function. In this approach,
different products enter the analysis as separate variables. This method accurately captures
differences in costs but requires that all plants produce all products specified in the model. If an
observation has a zero entry for one of its products, then it cannot be evaluated because a
translog cost function requires that all continuous variables be transformed to natural logarithms,
which are undefined at zero. Since there are many meat and poultry plants that produce only one