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An Opportunity Cost View of Fixed Asset Theory and the Overproduction Trap

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  • Marc A. Johnson
  • E. C. Pasour

Abstract

In fixed asset and exit barrier theories, durable asset valuation is based upon acquisition prices, yielding downwardly biased rate-of-return estimates and erroneous implications that excess resources become trapped in production when product price expectations fall. Conventional asset valuation based on opportunity cost shows that excess resource applications are incompatible with rational producer behavior. Market failure conclusions of overproduction trap models are shown to be unfounded. A review of recently published agricultural economics texts illustrates how use of fixed asset theory in the college classroom obscures the concept of choice-influencing cost and the rule of resource allocative efficiency.

Suggested Citation

  • Marc A. Johnson & E. C. Pasour, 1981. "An Opportunity Cost View of Fixed Asset Theory and the Overproduction Trap," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 63(1), pages 1-7.
    • Handle: RePEc:oup:ajagec:v:63:y:1981:i:1:p:1-7.
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    File URL: http://hdl.handle.net/10.2307/1239806
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    Citations

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    Cited by:

    1. William E. Foster & Gordon C. Rausser, 1991. "Farmer Behavior under Risk of Failure," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(2), pages 276-288.
    2. Feinerman, Eli & Peerlings, Jack H.M., 2002. "Uncertain Land Availability and Perceived Biases in Investment Decisions: The Case of Dutch Dairy Farms," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24949, European Association of Agricultural Economists.
    3. Just, Richard E., 1993. "Discovering Production and Supply Relationships: Present Status and Future Opportunities," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 61(01), pages 1-30, April.
    4. Just, Richard E., 1992. "Discovering Microeconomic Relationships in Agriculture," 1992 Conference (36th), February 10-13, 1992, Canberra, Australia 146530, Australian Agricultural and Resource Economics Society.
    5. Williams, John & McSweeney, Peter & Salmon, Robert, 2014. "Australian Farm Investment: Domestic and Overseas Issues," Papers 234408, University of Melbourne, Melbourne School of Land and Environment.
    6. Murray-Prior, Roy B. & Wright, Vic, 2001. "Influence of strategies and heuristics on farmers’ response to change under uncertainty," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 45(4), pages 1-26.
    7. Lin, Ni & Shumway, C. Richard, 2000. "Asset Fixity In U.S. Agriculture: Robustness To Functional Form," Ag Econ Series 12967, Washington State University, School of Economic Sciences.
    8. Taylor, Timothy G. & Kalaitzandonakes, Nicholas G., 1990. "A Test Of Asset Fixity In Southeastern U.S. Agriculture," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 22(01), pages 1-7, July.
    9. Johnson, Mark A., 1981. "RAILROADS: COST, CAPAClTY AND CRISIS," Department of Economics and Business - Archive 259713, North Carolina State University, Department of Economics.
    10. Pedro Damião de Sousa Henriques, 2011. "Attitudes, Behaviours and Motivations for Mechanization in Small Scale Portuguese Agriculture," CEFAGE-UE Working Papers 2011_05, University of Evora, CEFAGE-UE (Portugal).
    11. Schoney, R. A., 1984. "Using Extension Workshcpps as a Means for Collecting Farm Level Data," 1984 Annual Meeting, August 5-8, Ithaca, New York 279020, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    12. LaFrance, Jeffrey T. & Burt, Oscar R., 1983. "A Modified Partial Adjustment Model Of Aggregate U.S. Agricultural Supply," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 8(01), pages 1-12, July.

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