Production economics literature contains many studies which assume that the producer's goal is to ma,cimize profits. This study tests the hypothesis that Bernoullian and le,cicographic utility are more accurate predictors of farmer behavior than profit maximization. Si,c large California farms were used to test the hypothesis. After-income ta,c E-V (e,cpectation-variance) boundaries were developed for each farm and utility, and profit maximizing crop plans were determined for each. A goodness-of-fit criterion showed that Bernoullian utility formulations provided the greatest accuracy in predicting actual and planned crop patterns, followed by the lexicographic formulation. Profit maximization showed the poorest predictive power.
This study assumes that certain parameters of the distributions of crop prices, yields, and incomes can be established empirically. Measures of the variability of prices, yields, and incomes are computed on the basis of 20 to 40 years of historical data. The parameter used to characterize the variability associated with various crops and cropping systems is the variance of the random portion as defined later of each time series. While empirical variability estimates are not necessarily identical with the traditional concept of either "risk" or "uncertainty," they are objective measures of past variability in crop production. Assuming that future variability of particular crops is closely related to past variability, empirical variability estimates should provide a more reasonable basis for making both short-run and long-run cropping decisions. Three types of crop variability are considered in this study: Price Variability. Product and input prices are subject to variability from a number of sources. In California, certain products, notably those under government programs, have relatively stable prices. However, other products-for example, certain perishable fruits and vegetables-exhibit extreme price variation. Yield Variability. Yield variability arises from uncertain weather conditions, disease, insect and weed problems, resource availability (e.g., labor) and technological change. Yield variability of irrigated crops in California usually is less than for dryland farmed crops. Income Variability. Income variability per acre arises from the interaction of product yield per acre and product prices relative to costs. Variability in income is of primary interest to California farmers. Objectives This study estimates the degree of variability in yields, prices and incomes associated with various types of crop production in California and investigates the relationships between stability and level of farm income from particular cropping systems. Knowledge of these relationships is prerequisite to rational choices among crops or combinations of crops to produce. For example, farmers must decide whether to produce: a) high income crops with a correspondingly high risk of large losses and possible bankruptcy, b) lower risk crops with lower average income, c) a combination of high and low risk crops. New farmers, farmers with limited capital or farmers who prefer not to gamble on high-risk crops could choose crop combinations which minimize risk, thus avoiding the short-run possibility of bankruptcy and thereby remain in farming for longer-run gains. Established farmers or those with high risk preferences might concentrate on high-risk crops. Again this choice also may be rational; in the minds of such farmers, high "possible" incomes offset greater probabilities of large losses. In line with these general goals, the specific objectives of this study are: 1. To estimate absolute and relative variability of product prices, yields, and gross income of major field crops, vegetables, fruit, and nut crops in California. 2. To...
T H IS paper concentrates on estimating the long-run planning curve for farms in a highly commercialized cash crop area of California. For this purpose, both research approaches traditionally employed in economies of size studies are examined: (1) budgeting and linear programming of synthesized operations of different sizes, and (2) regression analysis based on observations from a sample of farms. The empirical results derived therefrom may be indicative of future findings in other large-scale farming areas of California and the United States, perhaps providing insight into the perennial question of «how big" commercial farms might become in the forseeable future. Theoretical ConsiderationsTheoretical concepts underlying economies of scale are well documented in economic literature.' Thus, following is only a brief summary of the concepts which provide the foundation for the empirical findings. For the simple case-a single product (output) produced with several factors (inputs)-the problem is to establish a unique cost-output curve wherein costs are minimized for each output level. This unique long-run or planning curve (usually expressed in terms of average costs) is derived as the envelope to a series of short-run cost curves, each of which corresponds to farms or plants of different «fixed" sizes.Concepts underlying cost economies for firms producing multiple products (ordinarily the realistic case in agriculture) represent a logical extension of the Single product case. With multiple products, a total cost envelope surface can be visualized representing the minimum cost of producing all levels and combinations of products. Conceptually this relationship permits examination of changes in total costs as output is expanded along any trace or path on the n-dimensional multiple product cost surface. While such a surface might be approximated empirically," the procedure would be quite costly and cumbersome with a large number of products
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