Expenditure Constraints and Profit Maximization in U.S. Agriculture

Hyunok Lee and Robert G. Chambers

American Journal of Agricultural Economics, 1986, vol. 68, issue 4, 857-865

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.

Date: 1986
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