Returns and Risks of Expanding Pennsylvania Dairy Farms with Different Levels of Equity

H. R. Hinman and R. F. Hutton

American Journal of Agricultural Economics, 1971, vol. 53, issue 4, 608-611

Abstract: An accepted theory of farm firm behavior was incorporated into an abstract computerized simulation model to evaluate the returns and risks involved to Pennsylvania dairy farm firms expanding at different levels of equity. In addition, management efficiency was treated as a parameter to test for interaction of the policies and situations with this characteristic. The base of the analysis was a dairy farm situation having crop yields and production levels approximating that of an efficient Central Pennsylvania farm. The variations and trends in yield, production, and price were intended to approximate those experienced by Pennsylvania farmers during the previous ten years. Under the given environmental and economic assumptions, the results of this study strongly indicated that the payoff for taking the risk of thinning equity below present conventional levels during farm expansion is quite high in most situations.

Date: 1971
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