A STRUCTURAL APPROACH TO ESTIMATING RATE OF RETURN EXPECTATIONS OF FARMERS

A dual cost function approach is developed as an alternative to time series and simplistic approaches for estimating farmers' expected operating rates of return on assets. A translog restricted cost function is estimated using data provided by 152 North Carolina dairy farmers over the period 1976 through 1986. The predicted costs from the fitted restricted cost function are used to construct estimates of farmers' expected operating rates of return on assets. The estimates from this structural approach explain more of the variation in observed rates than do time series estimates or sample mean observed rates.