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A Farm Firm Model of Machinery Investment Decisions

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  • Donald W. Reid
  • Garnett L. Bradford

Abstract

This article presents a multiperiod mixed integer programming (MMIP) model of optimal machinery decisions. Infinite horizon valuation models of replacement and other investment situations are conceptualized in the context of a finite programming model. Dual properties of the MMIP model are used to identify and value opportunity costs involved in investment decisions of farm machinery. The interdependent nature of investment and production relationships necessary for solving these values emphasizes the importance of a holistic firm perspective in analyzing farm machinery investment strategies. An empirical situation is used to demonstrate model application.

Suggested Citation

  • Donald W. Reid & Garnett L. Bradford, 1987. "A Farm Firm Model of Machinery Investment Decisions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(1), pages 64-77.
    • Handle: RePEc:oup:ajagec:v:69:y:1987:i:1:p:64-77.
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    File URL: http://hdl.handle.net/10.2307/1241307
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    Cited by:

    1. Warjiyo, Perry & Huffman, Wallace E., 1997. "Dynamic input demand functions and resource adjustment for US agriculture: state evidence," Agricultural Economics, Blackwell, vol. 17(2-3), pages 223-237, December.
    2. Tozer, Peter R., 2005. "Depreciation Rates for Australian Tractors and Headers - Is Machinery Depreciation a Fixed or Variable Cost?," 2005 Conference (49th), February 9-11, 2005, Coff's Harbour, Australia 137951, Australian Agricultural and Resource Economics Society.
    3. Kingwell, Ross S., 1996. "On-Farm Factors Influencing Investment In Crop Sowing Machinery," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 40(3), pages 1-14, December.
    4. Atwood, Joseph & Smith, Vincent & Watts, Myles, 1991. "Lemons, List Prices and Other Problems with Measuring Economic Depreciation Rates for Agricultural Machinery," WAEA/ WFEA Conference Archive (1929-1995) 321433, Western Agricultural Economics Association.
    5. Ostermark, Ralf & Skrifvars, Hans & Westerlund, Tapio, 2000. "A nonlinear mixed integer multiperiod firm model," International Journal of Production Economics, Elsevier, vol. 67(2), pages 183-199, September.
    6. Watkins, K. Bradley & Hill, Jason L. & Anders, Merle M. & Windham, Tony E., 2006. "Whole-Farm Evaluation of No-Till Profitability in Rice Production using Mixed Integer Programming," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 38(3), pages 1-17, December.
    7. McClelland, John W. & Wetzstein, Michael E. & Noles, Richard K., 1987. "Optimal Replacement Policies for Recyclable Assets," 1987 Annual Meeting, August 2-5, East Lansing, Michigan 270113, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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