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Expenditure Constraints and Profit Maximization in U.S. Agriculture

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  • Hyunok Lee
  • Robert G. Chambers

Abstract

This paper considers the effect of expenditure constraints on producer profit maximization. A theory of expenditure-constrained profit maximization that provides restrictions for testing the competing null hypotheses of unconstrained and expenditure-constrained profit maximization is developed. The resulting model is fitted to aggregate U.S. agricultural data. The hypothesis of unconstrained profit maximization is rejected, while expenditure-constrained profit maximization cannot be rejected for U.S. agriculture. U.S. farmers apparently experience binding constraints in financing their variable production costs.

Suggested Citation

  • Hyunok Lee & Robert G. Chambers, 1986. "Expenditure Constraints and Profit Maximization in U.S. Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(4), pages 857-865.
    • Handle: RePEc:oup:ajagec:v:68:y:1986:i:4:p:857-865.
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    File URL: http://hdl.handle.net/10.2307/1242132
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    Cited by:

    1. Laurens Cherchye & Bram De Rock & Annalisa Ferrando & Klaas Mulier & Marijn Verschelde, 2020. "Identifying Financial Constraints," Working Papers ECARES 2020-04, ULB -- Universite Libre de Bruxelles.
    2. Pavel Ciaian & d’Artis Kancs, 2011. "The Impact Of Food Price Shock On Heterogeneous Credit Constrained Firms," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 82(2), pages 115-137, June.
    3. Xiangming Fang & Rodney Smith, 2008. "Barriers to Efficiency and the Privatisation of Township-Village Enterprises," Journal of Development Studies, Taylor & Francis Journals, vol. 44(3), pages 409-424.
    4. Amr Khafagy & Mauro Vigani, 2023. "External finance and agricultural productivity growth," Agribusiness, John Wiley & Sons, Ltd., vol. 39(2), pages 448-472, March.
    5. Martin Petrick, 2005. "Empirical measurement of credit rationing in agriculture: a methodological survey," Agricultural Economics, International Association of Agricultural Economists, vol. 33(2), pages 191-203, September.
    6. Lee, Hyunok & Chambers, Robert G., 1989. "Optimal Farm Credit Policy Under Asymmetric Information," Working Papers 197624, University of Maryland, Department of Agricultural and Resource Economics.
    7. Jin, Man & Zhao, Shunan & Kumbhakar, Subal C., 2019. "Financial constraints and firm productivity: Evidence from Chinese manufacturing," European Journal of Operational Research, Elsevier, vol. 275(3), pages 1139-1156.
    8. Wamadini dite Minata Souratie & Farida Koinda & Rasmata Samandoulougou & Bernard DecaluweÌ, 2019. "Politiques agricoles, emploi et revenu des femmes au Burkina Faso," Working Papers MPIA 2019-19, PEP-MPIA.
    9. Pokrivčák, Ján & Tóth, Marián, 2022. "Financing Gap of Agro-food Firms and the Role of Policies," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 14(3), September.
    10. Robert G. Chambers, 1989. "Recent Developments in Production Economics," The Economic Record, The Economic Society of Australia, vol. 65(3), pages 243-264, September.
    11. Kivanda, Lena & Fox, Glenn, 1993. "Falsification and the Practice of Agricultural Production Economists: A Methodological Assessment," Department of Agricultural Economics and Business 258724, University of Guelph.
    12. Carlos Arnade & Munisamy Gopinath, 2000. "Financial constraints and output targets in Russian agricultural production," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(1), pages 71-84.
    13. Laurens Cherchye & Bram De Rock & Annalisa Ferrando & Klaas Mulier & Marijn Verschelde, 2018. "Identifying Financial Constraints from Production Data," Working Papers ECARES 2018-31, ULB -- Universite Libre de Bruxelles.
    14. Kenneth Løvold Rødseth, 2017. "Environmental regulations and allocative efficiency: application to coal-to-gas substitution in the U.S. electricity sector," Journal of Productivity Analysis, Springer, vol. 47(2), pages 129-142, April.
    15. Yumei Liu & Wuyang Hu & Simon Jetté-Nantel & Zhihong Tian, 2014. "The Influence of Labor Price Change on Agricultural Machinery Usage in Chinese Agriculture," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 62(2), pages 219-243, June.
    16. Ram Pratap Sinha, 2021. "Profit Benchmarking of Indian General Insurance Companies," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 7, pages 73-92.
    17. Aradhyula, Satheesh Venkata, 1989. "Policy structure, output supply and input demand for US crops," ISU General Staff Papers 198901010800009909, Iowa State University, Department of Economics.

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