ESTIMATION OF JOINT COSTS ALLOCATION COEFFICIENTS USING THE MAXIMUM ENTROPY: A CASE OF MEDITERRANEAN FARMS

Abstract

This paper aims to estimate the farm joint costs allocation coefficients from whole farm input costs. An entropy approach was developed under a Tobit formulation and it was applied to a sample of farms from the 2004 Farm Accounting Data Network base for the Alentejo region, Southern Portugal. Five alternative model specifications respecting error bounds, the central value of the uniform prior support and the generalized cross entropy were tested. Model results were assessed in terms of their precision and estimation power and were compared with real data. The entropy estimation showed a high degree of precision and its practical validity was guaranteed to allocate joint costs, even in the specific context of Mediterranean farms.