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Farm‐level nonparametric analysis of cost‐minimization and profit‐maximization behavior

Author

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  • Allen M. Featherstone
  • Ghassan A. Moghnieh
  • Barry K. Goodwin

Abstract

This study investigates non‐parametrically the optimizing behavior of a sample of 289 Kansas farms under profit‐maximization and cost‐minimization hypotheses. The study uses both deterministic and stochastic non‐parametric tests. The deterministic results do not support strict adherence to either optimization hypothesis. The stochastic tests suggest that all 289 farms fail the profit‐maximization hypothesis, whereas 171 farms failed the cost‐minimization hypothesis. Allowing for non‐regressive technical change docs not alter the basic results; 276 farms violate the profit‐maximization hypothesis and 138 violate the cost‐minimization hypothesis. The evidence against cost‐minimization behavior seems to be far less substantial than that against profit‐maximization behavior.

Suggested Citation

  • Allen M. Featherstone & Ghassan A. Moghnieh & Barry K. Goodwin, 1995. "Farm‐level nonparametric analysis of cost‐minimization and profit‐maximization behavior," Agricultural Economics, International Association of Agricultural Economists, vol. 13(2), pages 109-117, November.
    • Handle: RePEc:bla:agecon:v:13:y:1995:i:2:p:109-117
    DOI: 10.1111/j.1574-0862.1995.tb00380.x
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    2. Loren Tauer & Zdenko Stefanides, 1998. "Success in maximizing profits and reasons for profit deviation on dairy farms," Applied Economics, Taylor & Francis Journals, vol. 30(2), pages 151-156, February.
    3. Lee, Young-Jae, 2008. "Theoretical Examination of the Conditions of Best Management Practices Adoption and the Easing of Trade Distortion for Sugar," 2008 Annual Meeting, February 2-6, 2008, Dallas, Texas 6826, Southern Agricultural Economics Association.
    4. Wu, Shunxiang & Prato, Anthony A., 2006. "Cost Efficiency and Scope Economies of Crop and Livestock Farms in Missouri," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 38(3), pages 1-15, December.
    5. Featherstone, Allen M. & Kastens, Terry L., 2000. "Non-Parametric and Semi-Parametric Techniques for Modeling and Simulating Correlated, Non-Normal Price and Yield Distributions: Applications to Risk Analysis in Kansas Agriculture," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 32(2), pages 267-281, August.
    6. Bar-Shira, Ziv & Finkelshtain, Israel, 1997. "Nonparametric analysis of pooled production data," Economics Letters, Elsevier, vol. 55(2), pages 173-178, August.
    7. Zereyesus, Yacob Abrehe & Featherstone, Allen M. & Langemeier, Michael R., 2009. "Farm Level Nonparametric Analysis of Profit Maximization Behavior with Measurement Error," 2009 Annual Meeting, January 31-February 3, 2009, Atlanta, Georgia 46829, Southern Agricultural Economics Association.
    8. Masato Nakane & Loren Tauer, 2009. "Empirical dairy profits under fluctuating prices," Applied Economics, Taylor & Francis Journals, vol. 41(1), pages 5-15.
    9. Just, Richard E., 2003. "Risk research in agricultural economics: opportunities and challenges for the next twenty-five years," Agricultural Systems, Elsevier, vol. 75(2-3), pages 123-159.
    10. Luc Valentin & Daniel J. Bernardo & Terry L. Kastens, 2004. "Testing the Empirical Relationship between Best Management Practice Adoption and Farm Profitability," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 26(4), pages 489-504.
    11. Hu, Yun-fei & You, Fei & Luo, Qi-you, 2018. "Characterizing the attitudes of the grain-planting farmers of Huaihe Basin, China," Food Policy, Elsevier, vol. 79(C), pages 224-234.
    12. Mundlak, Yair, 1999. "Production and Supply (Revised)," Working Papers 232819, Hebrew University of Jerusalem, Center for Agricultural Economic Research.
    13. Yacob Abrehe Zereyesus & Allen M. Featherstone & Michael R. Langemeier, 2021. "Are Kansas farms profit maximizers? A stochastic additive error approach," Agricultural Economics, International Association of Agricultural Economists, vol. 52(1), pages 37-50, January.
    14. Just, Richard E., 2000. "Some Guiding Principles for Empirical Production Research in Agriculture," Agricultural and Resource Economics Review, Cambridge University Press, vol. 29(2), pages 138-158, October.
    15. 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.
    16. Pereira, Mariana A. & Fairweather, John R. & Woodford, Keith B. & Nuthall, Peter L., 2016. "Assessing the diversity of values and goals amongst Brazilian commercial-scale progressive beef farmers using Q-methodology," Agricultural Systems, Elsevier, vol. 144(C), pages 1-8.
    17. Featherstone, Allen M. & Langemeier, Michael R. & Ismet, Mohammad, 1997. "A Nonparametric Analysis of Efficiency for a Sample of Kansas Beef Cow Farms," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 29(1), pages 175-184, July.
    18. Marcus Asplund, 2018. "Did the Swedish Tobacco Monopoly Set Monopoly Prices?," Economica, London School of Economics and Political Science, vol. 85(339), pages 532-557, July.

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