true custom rate, then machinery costs are a strength for the farm. If the farm is performing
machinery operations for more than the true custom rates, then machinery costs would be a
weakness and the farm might consider “out sourcing,” or having someone else perform the
machinery operations by hiring custom work to be done.
Models
The underlying conceptual model of this research is based on the premise that crop
machinery costs are dependent upon the field operations performed and the size of the farm, with
farm size being represented by harvested acres, and is characterized as
(1) tcmc = f(field operations, harvested acres).
The dependent variable is the total crop machinery cost (tcmc) for a farm, and the independent
variables are the number of units (acres, tons, bales, etc.) each of the individual farming
operations were performed on as well as the total harvested acres for the given farm. The
conceptual model above was empirically specified with four different functional forms to capture
the scale or size effect of farms. The functional forms include linear, quadratic, reciprocal, and
logarithmic. The empirical specification of the linear model (model 1) is the following
(2) tcmci=[β1fcwofi+β2swofi+β3dski+β4schi+β5dchi+β6ddchi+β7mbpi+β8rcci+
β9dntwofi+β10drtwofi+β11pntwofi+β12prtwofi+β13spci+β14spfi+β15spcfi+β16nh3i+β17bdfi+
β18ilfi+β19hwi+β20whtydi+β21hci+β22cornydi+β23hgsi+β24gsydi+β25hsbi+β26sbydi+
β27hsfi+β28swthi+β29rhi+β30slrbi+β31llrbi+β32lsbi+β33ssbi+β34csi+β35rmi+β36fpmi+
β37gsmi +(β38β1fcwfi) +(β38β2swfi) +(β8β9dntwfi) +(β38β10drtwfi) +(β38β11pntwfi) +
(β38β12prtwfi)]{β39+β40hai}+ei,
where variables in the model are defined in Table 1 and the subscript i denotes individual farms.
The estimated coefficients β1 to β37 represent the per unit charge to perform the
respective field operations. The sign on all of the coefficients is expected to be positive, as to
say it actually does cost money to perform field operations. The estimated coefficients β20 ,