Rates of return on U.S. farm investments, 1940-2003: a comparison of imputed returns versus residual income approaches
AbstractThe rate of return on farm assets is a key indicator of the profitability of farm sector investments. The residual income approach is most commonly used to estimate the returns to farm assets, farmland, and labor and management. However this approach may be sensitive to the underlying assumptions. This study examines the implications of the residual return assumption by using alternative formulations for computing the rate of return to farm assets. Specifically, we develop the rate of return on agricultural assets using an alternative imputation method. We demonstrate that the presence of multiple quasi-fixed factors implies the rate of return to farm assets may be understated by the residual income approach.
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Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Agricultural Finance Review.
Volume (Year): 66 (2006)
Issue (Month): 1 (May)
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Web page: http://www.emeraldinsight.com
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
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