An Empirical Test of Utility vs. Profit Maximization in Agricultural Production

William Lin, G. W. Dean and C. V. Moore

American Journal of Agricultural Economics, 1974, vol. 56, issue 3, 497-508

Abstract: Production economics literature contains many studies which assume that the producer's goal is to maximize profits. This study tests the hypothesis that Bernoullian and lexicographic utility are more accurate predictors of farmer behavior than profit maximization. Six large California farms were used to test the hypothesis. After-income tax E-V (expectation-variance) boundaries were developed for each farm and utility, and profit maximizing crop plans were determined for each. A goodness-of-fit criterion showed that Bernoullian utility formulations provided the greatest accuracy in predicting actual and planned crop patterns, followed by the lexicographic formulation. Profit maximization showed the poorest predictive power.

Date: 1974
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