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Reservation Prices on Credit Use: A Measure of Response to Uncertainty

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  • Peter J. Barry
  • C. B. Baker

Abstract

Liquidity in the form of reserved credit is valuable to a business manager because it is available to counter uncertain expectations. This paper investigates the definition and method of estimating values or reservation prices associated with firm liquidity provided by unused credit. A multiperiod linear programming model is taken to reflect the behavior of decision makers in empirically observed situations. Credit reservation prices of decision makers were inferred by comparing growth information for real borrowers with growth information generated by the comparable model at alternative reservation prices. This method succeeded in associating a high credit reservation price with the conservative borrower and low credit reservation prices with a more liberal borrower.

Suggested Citation

  • Peter J. Barry & C. B. Baker, 1971. "Reservation Prices on Credit Use: A Measure of Response to Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 53(2), pages 222-227.
    • Handle: RePEc:oup:ajagec:v:53:y:1971:i:2:p:222-227.
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    File URL: http://hdl.handle.net/10.2307/1237435
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    Citations

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    Cited by:

    1. Baltezore, James F. & Gustafson, Cole R., 1993. "Availability of Financing for Livestock Production in North Dakota," Agricultural Economics Reports 23229, North Dakota State University, Department of Agribusiness and Applied Economics.
    2. Raikes, Ronald & Sieck, Gail M. & Miller, Katherine S., 1978. "A Risk Programming Analysis Of Cattle Procurement By Beef Packers," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 10(2), pages 1-6, December.
    3. Baltezore, James F. & Gustafson, Cole R. & Leistritz, F. Larry, 1992. "Financial Barriers to International Trade in North Dakota," Agricultural Economics Reports 23469, North Dakota State University, Department of Agribusiness and Applied Economics.
    4. Baker, Chester B., 1974. "An Economic Alternative To Concessional Farm Interest Rates," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 18(3), pages 1-22, December.
    5. Barry, P. J., 1971. "Financial Analysis of Expansion Alternatives for Cash Grain Farms in Ontario," Working Papers 244671, University of Guelph, Department of Food, Agricultural and Resource Economics.
    6. Brake, John R. & Melichar, Emanuel, 1977. "Agricultural Finance and Capital Markets," A Survey of Agricultural Economics Literature, Volume 1: Traditional Fields of Agricultural Economics 1940s to 1970s,, Agricultural and Applied Economics Association.
    7. Walker, Odell L. & Hardin, Mike L. & Mapp, Harry P., Jr. & Roush, Clint E., 1979. "Farm Growth And Estate Transfer In An Uncertain Environment," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 11(1), pages 1-12, July.
    8. Anastassiadis, F. & Liebe, U. & Mußhoff, O., 2013. "Finanzielle Flexibilität in landwirtschaftlichen Investitionsentscheidungen: Ein Discrete Experiment," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 48, March.
    9. McCarl, Bruce A. & Musser, Wesley N., 1985. "Modeling Long Run Risk In Production And Investment Decisions," Regional Research Projects > 1985: S-180 Annual Meeting, March 24-27, 1985, Charleston, South Carolina 271799, Regional Research Projects > S-180: An Economic Analysis of Risk Management Strategies for Agricultural Production Firms.
    10. Baker, C.B. & Barry, Peter J. & Lee, Warren F. & Olson, Carl E. & Hochman, Eithan & Rausser, Gordon S. & Kottke, Marvin W., 1977. "Economic Growth of the Agricultural Firm," Western Region Archives 260636, Western Region - Western Extension Directors Association (WEDA).
    11. Schnitkey, Gary D. & Taylor, C. Robert & Barry, Peter J., 1989. "Evaluating Farmland Investments Considering Dynamic Stochastic Returns And Farmland Prices," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 14(1), pages 1-14, July.
    12. Harris, Kim & Baker, Chester B., 1985. "Eliciting Liquidity Preferences For Cash And Intermediate Credit Reserves From Central Illinois Farmers," 1985 Regional Committee NC-161, October 9-10, 1985, St. Louis, Missouri 140934, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    13. Anastassiadis, Friederike & Mußhoff, Oliver, 2013. "Evaluating the role of financial flexibility in farmers' investment decisions using latent class analysis," 87th Annual Conference, April 8-10, 2013, Warwick University, Coventry, UK 158707, Agricultural Economics Society.
    14. Anastassiadis, Friederike & Liebe, Ulf & Mußhoff, Oliver, 2015. "Financial Flexibility in agricultural investment decisions: A discrete choice experiment," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 16(1), pages 1-12.
    15. Peter Bardsley & Arun Abey & Scott V. Davenport, 1984. "The Economics Of Insuring Crops Against Drought," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 28(1), pages 1-14, April.
    16. Barry, Peter J. & Hopkin, John A., 1972. "Financial Intermediation In Agriculture: A Suggested Analytical Model," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 4(1), pages 1-5, July.
    17. Sonka, Steven T. & Dixon, Bruce L., 1979. "Determinants Of Lender Response To Short-Term Credit Needs Of Small Commercial Farmers," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 11(1), pages 1-5, July.
    18. Barry, Peter J. & Baker, C. B. & Sanint, Luis R., 1980. "Farmers 1 Credit Risks And Liquidity Management," Risk Analysis in Agriculture: Research and Educational Developments, January 16-18, 1980, Tucson, Arizona 271568, Regional Research Projects > W-149: An Economic Evaluation of Managing Market Risks in Agriculture.
    19. Ockwell, Anthony P. & Batterham, Robert L., 1982. "The Influence of Credit on Farm Growth," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 50(03), pages 1-18, December.
    20. Patrick, George F., 1979. "Effects Of Debt Levels And Loan Arrangements On Farm Firm Survival And Growth," Risk Management in Agriculture: Behavioral, Managerial, and Policy Issues, January 25-26, 1979, San Francisco, California 271464, Regional Research Projects > W-149: An Economic Evaluation of Managing Market Risks in Agriculture.
    21. Weerawardane, Gayatri C., 1993. "Rationing in agricultural credit markets: evidence from Iowa farm operators," ISU General Staff Papers 1993010108000018158, Iowa State University, Department of Economics.
    22. Brake, John R. & Melichar, Emanuel, 1977. "PART VI. Agricultural Finance and Capital Markets," AAEA Monographs, Agricultural and Applied Economics Association, number 337218, january.
    23. R. Yabile Kinimo, 1985. "Recherche sur l'équilibre financier d'un programme de crédit agricole en Côte-d'Ivoire," Économie rurale, Programme National Persée, vol. 170(1), pages 36-38.
    24. Whitson, Robert E. & Barry, Peter J. & Lacewell, Ronald D., 1976. "Vertical Integration Of Risk Management: An Application To A Cattle Ranch," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 8(2), pages 1-6, December.
    25. Barry, Peter J. & Ellinger, Paul N., 1989. "Credit Scoring, Loan Pricing, And Farm Business Performance," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 14(1), pages 1-11, July.

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