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Forecast Errors and Farm Firm Growth

Author

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  • Kolajo, Ebenezer F.
  • Martin, Neil R., Jr.
  • Hanson, Gregory D.

Abstract

Researchers should be wary of the expectations framework and optimization method employed when drawing conclusions about the likely production behavior of farmers The article compares the predictive accuracy of two expectational schemes, supply-based expectations (SBE) and adaptive expectations (ADE), and two modeling approaches, multiperiod linear programming (MPLP) and recursive strategic linear programming (RSLP) Estimated costs of expectational error were sensitive to expectational assumptions and modeling methods Unanticipated annual revenue gains for the model farm ranged as high as $75,000 for the SBE scheme with the MPLP model, and shortfalls ranged as high as $52,000 for the ADE scheme with the RSLP model The magnitude of unanticipated gains and shortfalls increased disproportionately with greater use of debt financing

Suggested Citation

  • Kolajo, Ebenezer F. & Martin, Neil R., Jr. & Hanson, Gregory D., 1988. "Forecast Errors and Farm Firm Growth," Journal of Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, vol. 40(4), pages 1-10.
    • Handle: RePEc:ags:uersja:137560
    DOI: 10.22004/ag.econ.137560
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    References listed on IDEAS

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    1. Joseph Havlicek & James A. Seagraves, 1962. "The "Cost of the Wrong Decision" as a Guide in Production Research," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 44(1), pages 157-168.
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