Estimation of cost allocation coefficients at the farm level using an entropy approach

Abstract

This paper aims to estimate the farm cost allocation coefficients from whole-farm input costs. An entropy approachwas developed under aTobit formulation andwas applied to a sample of farms from the 2004 Farm Accountancy Data Network data base for Alentejo region, Southern Portugal. A Generalized Maximum Entropy model and Cross Generalized Entropy model were developed to the sample conditions and were tested. Model results were assessed in terms of their precision and estimation power and were compared with the observed data. The entropy approach showed to be a flexible and valid tool to estimate incomplete information, namely regarding farm costs.