Estimating the elasticity of transformation between on-farm work and off-farm work for Norwegian dairy farmers

We have collected a sample of 2191 milk farm households. The sample contains information on incomes made off- and on-farm and working hours devoted into those two activities, during the years 1996-2004,. Based on a method developed by J. Thornton we estimate on-farm and off-farm labour supply functions, using both 2SLS and 3SLS. We find that the elasticity of transformation between on-farm and off-farm work is approximately -0.9.