A wide range of assumptions about the capital deterioration and marginal factor cost of tractors has been made in previous studies. This study develops a measure of the implicit rental price of tractors which accounts for the capital structure used by farmers, the capacity depreciation of tractors, and income tax considerations. Estimates of net investment models for alternative capacity depreciation patterns are compared to those suggested by engineering considerations. The results show that the frequently used geometric decay pattern does the poorest job of explaining annual real net investment in farm tractors.
The widely used estimates of annual capacity depreciation for selected types of farm producer capital published by the US DA rest on the assumption that the amount of capital consumed annually equals a constant fraction of the existing capital stocks. This study demonstrates, through the use of agricultural engineering data, that the productive capacity of farm tractors deteriorates in a concave rather than the convex pattern suggested by present USDA estimates. The implications for studies estimating aggregate production functions based on factor shares or farm investment demand equations are discussed. Finally, recommendations for change to selected sector economic accounts are made.
The relative uncertainty of agricultural prices and industrial prices with respect to the uncertainty of growth in the money supply are investigated utilizing multivariate ARCH and GARCH analysis. The conditional variances of agricultural prices were shown to dwarf the variances of industrial prices and the money supply. The relatively greater sensitivity of the conditional variance of agricultural prices to changes in the variance of the money supply than industrial prices found in this analysis provides a further perspective on the uncertainty confronting farmers, including the impacts of the monetary policy shock that precipitated the farm financial crisis in the early 1980s.
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