Rates of return on U.S. farm investments, 1940-2003: A comparison of imputed returns versus residual income approaches

Charles B. Moss, Ashok K. Mishra, Kenneth W. Erickson

Research output: Contribution to journalArticle

2 Scopus citations

Abstract

The rate of return on farm assets is a key indicator of the profitability of farm sector investments. The residual income approach is most commonly used to estimate the returns to farm assets, farmland, and labor and management. However this approach may be sensitive to the underlying assumptions. This study examines the implications of the residual return assumption by using alternative formulations for computing the rate of return to farm assets. Specifically, we develop the rate of return on agricultural assets using an alternative imputation method. We demonstrate that the presence of multiple quasi-fixed factors implies the rate of return to farm assets may be understated by the residual income approach.

Original languageEnglish (US)
Pages (from-to)91-107
Number of pages17
JournalAgricultural Finance Review
Volume66
Issue number1
DOIs
StatePublished - May 5 2006
Externally publishedYes

Keywords

  • Imputation method
  • Quasi-fixity
  • Residual income approach
  • Returns to farm assets

ASJC Scopus subject areas

  • Agricultural and Biological Sciences (miscellaneous)
  • Economics, Econometrics and Finance (miscellaneous)

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