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An Empirical Test of Utility vs. Profit Maximization in Agricultural Production
Author(s) -
Lin William,
Dean G. W.,
Moore C. V.
Publication year - 1974
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1238602
Subject(s) - profit maximization , economics , profit (economics) , maximization , econometrics , lexicographical order , production (economics) , microeconomics , mathematics , combinatorics
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.