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Success In Maximizing Profits And Reasons For Profit Deviation On Dairy Farms

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Author Info

  • Tauer, Loren W.
  • Stefanides, Zdenko

Abstract

The Weak Axiom of Profit Maximization (WAPM) was used to test how successful each of 70 individual New York State dairy farms was in maximizing profits using nine years of data. The netput vectors were corrected for technological change using nonparametric indices that do not require the assumption of profit maximization nor any functional form for the underlying technology. These technology indices are consistent with the nonparametric assumptions used in the WAPM tests. The average negative WAPM deviation over the 70 farms was .20, indicating that on average these farms could have selected available netput vectors that would have increased profits by 20 percent of total receipts. A tobit regression showed that the available characteristics on these farms explained very little of the variability in their abilities to select the best netput vectors. Yet, increased age and additional education increased the ability to select the best netput vector.

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Bibliographic Info

Paper provided by Cornell University, Department of Applied Economics and Management in its series Working Papers with number 127823.

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Date of creation: Apr 1997
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Handle: RePEc:ags:cudawp:127823

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Related research

Keywords: Farm Management; Livestock Production/Industries;

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  1. Fare, Rolf & Shawna Grosskopf & Mary Norris & Zhongyang Zhang, 1994. "Productivity Growth, Technical Progress, and Efficiency Change in Industrialized Countries," American Economic Review, American Economic Association, vol. 84(1), pages 66-83, March.
  2. Afriat, Sidney N, 1972. "Efficiency Estimation of Production Function," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(3), pages 568-98, October.
  3. Featherstone, Allen M. & Moghnieh, Ghassan A. & Goodwin, Barry K., 1995. "Farm-level nonparametric analysis of cost-minimization and profit-maximization behavior," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 13(2), November.
  4. Varian, Hal R., 1990. "Goodness-of-fit in optimizing models," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 125-140.
  5. Batra, Raveendra N & Ullah, Aman, 1974. "Competitive Firm and the Theory of Input Demand under Price Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 537-48, May/June.
  6. Tauer, Loren W., 1994. "Do New York Dairy Farmers Maximize Profits?," Staff Papers 121318, Cornell University, Department of Applied Economics and Management.
  7. Treadway, Arthur B., 1970. "Adjustment costs and variable inputs in the theory of the competitive firm," Journal of Economic Theory, Elsevier, vol. 2(4), pages 329-347, December.
  8. Simon, Herbert A., 1984. "On the behavioral and rational foundations of economic dynamics," Journal of Economic Behavior & Organization, Elsevier, vol. 5(1), pages 35-55, March.
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Citations

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Cited by:
  1. Vandermersch, Mieke & Mathijs, Erik, 2002. "Do Management Profiles Matter? An Analysis of Belgian Dairy Farmers," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24832, European Association of Agricultural Economists.
  2. St├ęphane Blancard & Jean-Philippe Boussemart & Walter Briec & Kristiaan Kerstens, 2006. "Short- and Long-Run Credit Constraints in French Agriculture: A Directional Distance Function Framework Using Expenditure-Constrained Profit Functions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(2), pages 351-364.
  3. Tauer, Loren W., 2003. "The Impact of recombinant bovine Somatotropin on Dairy Farm Profits: A Switching Regression Analysis," Working Papers 127241, Cornell University, Department of Applied Economics and Management.
  4. Galanopoulos, Konstantinos & Aggelopoulos, Stamatis & Kamenidou, Irene & Mattas, Konstadinos, 2006. "Assessing the effects of managerial and production practices on the efficiency of commercial pig farming," Agricultural Systems, Elsevier, vol. 88(2-3), pages 125-141, June.
  5. Ekaterina Emm & Jayant Kale, 2006. "Efficiency Implications of Corporate Diversification: Evidence from Micro Data," Working Papers 06-26, Center for Economic Studies, U.S. Census Bureau.
  6. Nastis, Stefanos A. & Papanagiotou, Evangelos & Zamanidis, Savvas, 2012. "Productive Efficiency of Subsidized Organic Alfalfa Farms," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 37(2), August.
  7. Wossink, Ada & Denaux, Zulal S., 2006. "Environmental and cost efficiency of pesticide use in transgenic and conventional cotton production," Agricultural Systems, Elsevier, vol. 90(1-3), pages 312-328, October.
  8. Fraser, I. & Cordina, D., 1999. "An application of data envelopment analysis to irrigated dairy farms in Northern Victoria, Australia," Agricultural Systems, Elsevier, vol. 59(3), pages 267-282, March.
  9. Stefanides, Zdenko & Tauer, Loren W., 1997. "Estimating Individual Farm Supply And Demand Elasticities Using Nonparametric Production Analysis," Working Papers 14743, Cornell University, Department of Applied Economics and Management.
  10. Liu, John S. & Lu, Louis Y.Y. & Lu, Wen-Min & Lin, Bruce J.Y., 2013. "A survey of DEA applications," Omega, Elsevier, vol. 41(5), pages 893-902.

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