Farmer Behavior under Risk of Failure

William Foster and Gordon Rausser

American Journal of Agricultural Economics, 1991, vol. 73, issue 2, 276-288

Abstract: We analyze input decisions under risk of farm failure. Inputs with immediate cash outlays have greater effective than observed prices because their cost increases the probability of failure, and their optimal marginal products are higher than observed prices would warrant under strict profit maximizing without failure risk. An algebraic example illustrates the market equilibrium effects of failure risk. We apply the model to an analysis of Illinois corn production (1971–79). Results indicate that larger farms deviate less than smaller farms from strict profit maximization. Over the period studied, farmers moved further from setting marginal products equal to observed prices.

Date: 1991
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Related works:
Working Paper: Farmer behavior under risk of failure (1990)
Working Paper: FARMER BEHAVIOR UNDER RISK OF FAILURE (1988)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:ajagec:v:73:y:1991:i:2:p:276-288.

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