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Farmers' Marginal Propensity to Consume: An Application to Illinois Grain Farms

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  • Michael R. Langemeier
  • George F. Patrick

Abstract

The marginal propensity to consume (MPC) for a sample of eighteen Illinois farms over the 1979–86 period is determined. Four consumption models were estimated using disposable household income plus depreciation as the measure of income. Estimated short-run MPCs ranged from 0.007 to 0.020, while long-run MPCs varied between 0.143 to 0.381. These results indicate farm family consumption responded little to changes in income and that the life cycle hypothesis model explains consumption significantly better than the other models. Robustness of the results is demonstrated using a larger sample of farms for 1986&87.

Suggested Citation

  • Michael R. Langemeier & George F. Patrick, 1990. "Farmers' Marginal Propensity to Consume: An Application to Illinois Grain Farms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(2), pages 309-316.
    • Handle: RePEc:oup:ajagec:v:72:y:1990:i:2:p:309-316.
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    Cited by:

    1. Chul‐Woo Kwon & Peter F. Orazem & Daniel M. Otto, 2006. "Off‐farm labor supply responses to permanent and transitory farm income," Agricultural Economics, International Association of Agricultural Economists, vol. 34(1), pages 59-67, January.
    2. Orazem, Peter F. & King, Elizabeth M., 2008. "Schooling in Developing Countries: The Roles of Supply, Demand and Government Policy," Handbook of Development Economics, in: T. Paul Schultz & John A. Strauss (ed.), Handbook of Development Economics, edition 1, volume 4, chapter 55, pages 3475-3559, Elsevier.
    3. Williams, David J. & Brewer, Brady E. & Baker, Timothy G. & Wilson, Christine A., 2020. "Consumption-Based Risk Measures of Kansas Farm Households," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304597, Agricultural and Applied Economics Association.
    4. Acmoody, Jacob & Balagtas, Joseph Valdes & Gray, Allan W., 2006. "Farm Level Incidence of the U.S. Farm Policy Proposal to the WTO," 2006 Annual meeting, July 23-26, Long Beach, CA 21260, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Sena Durguner, 2018. "Variations in farm consumption and their relationship to income: an empirical investigation of Illinois farm households," Applied Economics, Taylor & Francis Journals, vol. 50(9), pages 990-1005, February.
    6. Sand, Roald, 2002. "The Propensity to Consume Income from Different Sources and Implications for Saving: An Application to Norwegian Farm Households," Workshop on the Farm Household-Firm Unit: Its Importance in Agriculture and Implications for Statistics, April 12-13,2002, Wye Campus, Imperial College 15716, International Agricultural Policy Reform and Adjustment Project (IAPRAP).
    7. David J. Williams & Brady E. Brewer & Jessica E. Todd, 2022. "Farm households' consumption of ad hoc program payments," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 44(3), pages 1465-1481, September.
    8. Langemeier, Michael R. & Snider, Lindsey, 2009. "Marginal Propensity to Consume for a Sample of Kansas Farms," 2009 Annual Meeting, January 31-February 3, 2009, Atlanta, Georgia 45971, Southern Agricultural Economics Association.
    9. Kevin Z. Chen & Karl D. Meilke & Calum Turvey, 1999. "Income risk and farm consumption behavior," Agricultural Economics, International Association of Agricultural Economists, vol. 20(2), pages 173-183, March.
    10. Protopop, Iuliia & Boehlje, Michael & Stockton, Matthew & Bradley, Lubben, 2016. "The Effect of the Timing of Farm Transfer Initiation on Terminal Wealth in the Business: Simulation Model," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 236006, Agricultural and Applied Economics Association.
    11. Will Chancellor & Shiji Zhao, 2021. "Agricultural Households: An Exploratory Analysis Revisiting Financial Position and Well‐being in Australia," Economic Papers, The Economic Society of Australia, vol. 40(1), pages 14-30, March.
    12. Schnitkey, Gary D. & Novak, Frank, 1994. "Alternative Formulations Of Risk Preferences In Dynamic Investment Models," 1994 Quantifying Long Run Agricultural Risks and Evaluating Farmer Responses Risk, Technical Committee Meeting, March 24-26, 1994, Gulf Shores State Park, Alabama 271560, Regional Research Projects > S-232: Quantifying Long Run Agricultural Risks and Evaluating Farmer Responses to Risk.
    13. Monke, James D., 1997. "Tax-Deferred Risk Management Accounts For Farmers," 1997 Annual meeting, July 27-30, Toronto, Canada 21025, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    14. Jensen, Farrell E. & Pope, Rulon D., 2004. "Agricultural Precautionary Wealth," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(1), pages 1-14, April.
    15. Hisham S. El‐Osta, 2010. "Inequality decomposition of farm family living expenditures and the role of the life cycle," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 70(2), pages 245-266, August.

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