multiple goals, the weighting of which can
change with the farmer’s resources and per-
sonal circumstances. The goals and the initial
weights assumed are: family consumption
.40, net worth accumulation .25, risk aversion
.25, and work-leisure preference .10.3 Stan-
dards are established for each goal. The family
consumption standard is a function of current
and past income, family size, age of the opera-
tor, and the relative importance given the
family consumption goal. The norm for net
worth accumulation is specified as a percent-
age increase in net worth. The magnitude of
possible losses, in view of various prices, rela-
tive to net worth is the standard for risk aver-
sion. The standard for the work-leisure prefer-
ence goal is in terms of the days of operator
labor required and is a function of the
operator’s age and importance of the goal.
Alternatives are evaluated in a satisfying
framework. Four levels of satisfaction are
specified for each goal and the anticipated out-
come is compared with the standard.4 The level
of satisfaction with respect to a goal is multi-
plied by the weighting of the goal, and the
overall level of satisfaction is obtained by
summing these values for the four goals. The
alternative with the highest level of overall
satisfaction — the one which best attains the
operator’s multiple goals — is selected for
implementation.5
With inflation, prices in the real world do not
all increase proportionately. From 1964 to
1973, the average annual price increase for all
purchased farm inputs was 5.17 percent, but
ranged from 1.54 percent for fertilizer and lime
to 6.91 percent for real estate taxes [10]. The
model allows specification of three rates of in-
flation in a particular simulation run: one for
land prices, another for prices of agricultural
products, and the third for farm input prices,
living expenses, and other costs. Inflation
rates vary over time in the real world, but the
rates specified are constant for the 20-year
period considered.
In addition to causing changes in output
prices, value of assets, and input costs, infla-
tion affects the model in several other ways.
First, the family consumption goal and actual
consumption are adjusted by a factor reflect-
ing the rate of inflation of nonfarm prices so
that the real level of consumption is main-
tained. Second, the 1976 income tax rate is
adjusted to make the marginal tax rate con-
stant over time for a given level of real taxable
income. Actual tax payments increase slightly
in real terms, reflecting a lag in adjustment of
the personal exemptions and standard deduc-
tion.6 Self-employment tax is calculated as a
constant percentage of the income subject to
tax, and the maximum income subject to tax
increases with inflation of nonfarm prices.
Third, the standard for net worth accumula-
tion is a function of the absolute level of the
farmer’s net worth and the rate of inflation.
For example, if a farmer considers an annual
increase in net worth of 3 percent as acceptable
with no inflation, with 5 percent inflation the
standard would be an 8 percent increase.
Inflation also affects the model indirectly
through expectations with respect to future
prices of agricultural products. The distributed
lag model used for formulating price expecta-
tions for year t incorporates much of the past
inflation into expectations about the future.
However, inflation during the current year is
not anticipated in price expectations.
Although it would be possible to allow the
farmer to anticipate future inflation, to do so is
beyond the scope of the study.
The base model assumes prices, costs, and
yields similar to those of Central Indiana
during the mid-1970s. Corn and soybean prices
are $2.25 and $5.50 per bushel and direct costs,
excluding fertilizer, are $54.00 and $36.00 per
acre. Yields for an average level manager are
110 bushels of corn per acre and 34 bushels of
soybeans. Yields of crops are assumed to in-
crease about 1 percent annually during the
period simulated because of the effects of new
production technology. Land price is $1500 per
acre, about the Spring 1977 average for Indi-
ana. Intermediate and long-term credit is
limited to 70 percent of the value of the assets
and can be used to acquire additional resources
required or to replace existing machinery and
equipment.7 An interest rate of 9 percent is
assumed. Annual operating credit is essential-
ly unlimited, but the farmers consider the over-
all debt to asset ratio in their evaluation of an
alternative.
The model can be operated in a deterministic
’Several studies ∣3, 5, 8] have analyzed farmers' goals. In general, the ranking of goals found in these studies is interpreted as not being opposed to the weights
assigned in the model.
4For example, an alternative providing an income of 140 percent or more of the family consumption goal would be considered very satisfactory and given a satis-
faction level of 4. In contrast, a plan providing an income of less than 90 percent of the consumption norm would be unsatisfactory and given a 1. Plans providing 90
to 110 percent of the consumption goal would receive a satisfaction level of 2 and plans providing 110 to 140 percent would receive a 3.
5If an alternative involves the purchase of land, the satisfaction level with respect to net worth accumulation is increased enough to offset a one unit decrease in
satisfaction with respect to the family consumption risk and aversion goals.
6This is partially offset by use of the inflated values of machinery and buildings in calculating depreciation and net worth.
’A farmer in the model is permitted to borrow against equity which has been generated by inflation if he wishes.
10