Relating Farm and Operator Characteristics to Multiple Goals

Economic analyses of firm behavior are typically based on the assumption of maximization or minimization of a single goal. While economists recognize that multiple goals are important in making business decisions, a single goal, such as profit maximization, is used because it is operational and it provides an analytical approximation of firm behavior. However, the reduction of year-to-year income variability, providing an acceptable family living level, increasing net worth, additional leisure time, and many other goals have been suggested as being important to some farm firms. Some analyses have considered two or more of these goals by maximizing one subject to a constraint on another. In other cases, a utility function has been estimated for an individual farmer incorporating both expected income and variability of income. Although these efforts have been useful, progress towards incorporating multiple goals into empirical models has been inhibited by the inability to correctly specify important goals and the difficulty of incorporating several goals into frequently-used models. The recent development of simulation routines for farm firm analyses provides an analytical procedure that is sufficiently flexible to incorporate multiple goals. While it may be difficult to provide all of the information that is needed concerning goals and their use in decision making, additional information indicating the ranking of goals and the manner in which this hierarchy differs for farmers under alternative economic and noneconomic conditions provides a better basis for the selection of organizational and financial strategies. (This abstract was borrowed from another version of this item.)