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An evaluation of the British Columbia financial management training project Pereira-Lunghu, Jacob 1983

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AN  E V A L U A T I O N OF THE MANAGEMENT  B R I T I S H COLUMBIA TRAINING PROJECT  FINANCIAL  by  JACOBy^PEREIRA~ B.Sc.,  Cuttington  A THESIS  SUBMITTED  THE  LUNGHU  University  College,  IN P A R T I A L  FULFILLMENT  REQUIREMENTS MASTER  FOR OF  THE  DEGREE  1973  OF  SCIENCE  in THE  FACULTY  Department  We  accept to  THE  OF  GRADUATE  of A g r i c u l t u r a l  this  thesis  the required  as  Jacob  Economics  conforming  standard  U N I V E R S I T Y OF B R I T I S H November, 1983  ©  STUDIES  COLUMBIA  P e r e i r a - Lunghu,  1983  OF  /  In p r e s e n t i n g requirements of B r i t i s h it  this thesis f o r an  agree that for  understood that for  Library  shall  for reference  and  study.  I  f o r extensive copying of  h i s or  be  her  g r a n t e d by  f i n a n c i a l gain  shall  not  the  be  of  further this  this  The U n i v e r s i t y o f B r i t i s h 1956 Main Mall Vancouver, Canada V6T 1Y3 Date  6  (3/81)  Columbia  my  thesis  a l l o w e d w i t h o u t my  /WlLToU LVMK-  thesis  It i s  permission.  Department of  make  head o f  representatives.  copying or p u b l i c a t i o n  the  University  the  s c h o l a r l y p u r p o s e s may by  the  I agree that  permission  department o r  f u l f i l m e n t of  advanced degree a t  Columbia,  freely available  in partial  trCjD^ ft|j'c ^  written  i i  ABSTRACT  The  objective  effectiveness offered done an  to  of  two  in B r i t i s h  and  support  to  that  thesis  financial  Columbia.  of  should  the  as  to  the  given  to  this  assess  extension  This  course  makers  be  to  Firstly,  the  Secondly,  policy  is  management  i n mind.  revision  presentation.  information  this  objectives  improvement  and  a  farmers  with  of  the  program  assessment i t could  is  permit  format,  material  assessment  provides  value  form  of  of  courses  and  agricultural  training. After in  the  approach Profit input  data a  the  evaluation  of  was  as  chosen  is defined p r i c e s and  production such  reviewing  as  as  by  represented  producers,  beef  important capital  the  of  the  grain,  and  rented  prices,  model. variable  inputs  in  non-labor  feed  and  custom  types  sample of  nursery,  to  labor  the  inputs  work.  The  involved completion This  model  used  function  and  enterprises.  land,  profit  conceptual  output  work  different  methods  labor  farmers.  hired  a  Variable  hired  empirical  variables: (deeded  appropriate  chemicals,  mixed  various  methods,  inputs.  producers,  other  on  f u n c t i o n of  73  operators  restricted  a  component  questionnaire  and  an  include  fertilizer,  producers  extension  fixed  process  gathering  literature  a wage  of  producers:  of farm  dairy  orchardists,  Data  bee  availability  s e l e c t e d number rate,  of  aggregate  b u i l d i n g s , machinery  and  equipment  and  education,  and  A  livestock), financial  Cobb-Douglas  estimation  of  of  producers  the  encountered. the  use  groups  Results management marginal farm  assess  56  impact  of  out  through  impact  of  the  profit year,  of  through  the a  on  a  diverse  nature  problems  were  problem  selected The  the  involved  homogeneous  most  successful  i n p r o d u c t i o n . The  estimated  sample  of  percent  have  management. an  f o r 51  the  a In  At  The  farmers  change course  in  order  to was  expected out  of  a  variable  i s $2089  improvement  the  positive  evaluation  equation.  average in  i s $968.  73  ex-ante,  is positive  participation  average  management  program  3%  for  financial  financial  expected  a  farm,  the  prediction  The  representing  profits.  to  program  73.  of  the  a l lobservations.  financial  product  carried  population  of  on  used  the  this  for  that  out  of  samples.  i s important  farmers  value  the  the  to  was  aggregation  variables  indicate  return  form  to a l l e v i a t e  pooling  labor  skills.  Because  some  in  on  input  level  marginal  parameters.  dummy  relied  management  functional  Attempts  of  commodity strategy  the  operator's  in  per  their  iv TABLE  OF  CONTENTS  Chapter I INTRODUCTION 1.1  II  H i s t o r y of Programmes  F i n a n c i a l Management in B r i t i s h Columbia  1.2  The  1.3  O r g a n i z a t i o n of  THE  O b j e c t i v e of  THEORETICAL  RETURNS  TO  Literature  2.2  The  2.4  The the  5  Study  10  Thesis  12  FRAMEWORK  HUMAN  2.1  2.3  III  1  FOR  ASSESSING  CAPITAL  14  Review  Economic  14  Model  21  2.2.1 Optimal Combination of Resources . 2.2.1a The c o n s t r a i n e d O u t p u t S i t u a t i o n . 2 . 2 . 1 b T h e C o n s t r a i n e d C o s t S i t u a t i o n ... 2.2.1c P r o f i t M a x i m i z a t i o n  22 22 23 24  Choice Model  25  and  Derivation  of  the  Conceptual  Summary  29  ECONOMIC MODEL, DATA 3.1  The  3.2  Data  Economic  3.2.1  AND  FUNCTIONAL  FORM  Model  30  Sources Variable  34 Inputs  Costs  3.2.2 P r i c e s and C o s t s 3.2.3 Family Labor 3.2.4 Education 3.2.5 F i n a n c i a l Management A b i l i t i e s 3.2.5a C a s h Flow Management S k i l l s 3.2.5b Tax P l a n n i n g Management S k i l l s 3.2.6 Total Receipts 3.2.7 C a p i t a l Stock 3.2.7a C a p i t a l S e r v i c e s 3.2.8 Data C o l l e c t i o n Problems 3.3  F u n c t i o n a l Forms 3.3.1 3.3.2  30  L i n e a r Form Constant E l a s t i c i t y Substitution  36  ...  37 38 38 39 40 41 42 43 44 46 49 51  of 51  V  3.4  3.3.3 C o b b - D o u g l a s 3.3.4 F l e x i b l e F u n c t i o n a l F o r m s 3.3.4a G e n e r a l i z e d L e o n t i e f P r o f i t 3.3.4b V a r i a b l e P r o f i t F u n c t i o n  52 52 53 53  Implication  54  forEstimation  3.4.1 V a r i a t i o n i n I n p u t L e v e l s 3.4.2 M u l t i c o l l i n e a r i t y o f I n p u t s 3.4.3 S p e c i f i c a t i o n B i a s 3.4.4 L e f t O u t V a r i a b l e s 3.4.5 N o n - R e s p o n s e E r r o r s 3.5 Summary IV  E S T I M A T I N G T H E RETURNS F I N A N C I A L MANAGEMENT 4.1  The E s t i m a t i o n 4.1.1 4.1.2  4.2  4.2.3  V  SUMMARY, FUTURE  AND 61  of Returns  to Education...  Estimating Strategy. R e s u l t s of Revenue and P r o f i t Equations  Estimation Management 4.2.1 4.2.2  TO E D U C A T I O N  55 56 56 57 59 59  of Returns  62 65 67  to Financial 75  R e s u l t s o f F i n a n c i a l Management... The M a r g i n a l V a l u e Product Per Farm P r e d i c t i n g Expected Changes i n Profits  CONCLUSIONS  AND  IMPLICATIONS  RESEARCH  76 86 88  FOR 94  5. 1  Summary  94  5.2  Conclusions  98  5.3  Implications  f o r Future  Research  99  BIBLIOGRAPGHY  105  APPENDIX  A  111  APPENDIX  B  113  APPENDIX  C  115  vi APPENDIX D  119  APPENDIX E  123  APPENDIX F  134  vii L I S T OF  TABLES  3.1  L o c a t i o n , Commodity Type and Number of Farmers A t t e n d i n g F i n a n c i a l Management Workshops 3.2 H i r e d L a b o r Wage R a t e s , H i r e d L a b o r Expenditures and O p e r a t o r ' s E d u c a t i o n , L a b o r and F i n a n c i a l Management S k i l l s 3.3 S i n g l e Q u e s t i o n s of F i n a n c i a l Management Cash Flow and Tax P l a n n i n g : P r i o r t o and A f t e r • t h e C o u r s e - P o o l e d Sample 3.4 T o t a l Revenue, P r o f i t and C a p i t a l (000's $) 4.1 Revenue F u n c t i o n t o Measure t h e M a r g i n a l P r o d u c t i v i t y of E d u c a t i o n 4.2 V a r i a b l e P r o f i t F u n c t i o n t o Measure t h e M a r g i n a l P r o d u c t i v i t y of E d u c a t i o n 4.3 E s t i m a t e s o f t h e M a r g i n a l V a l u e P r o d u c t s f o r the T o t a l Revenue M o d e l 4.4 E s t i m a t e s o f t h e M a r g i n a l V a l u e P r o d u c t s f o r t h e V a r i a b l e P r o f i t Model 4.5 V a r i a b l e P r o f i t F u n c t i o n t o Measure t h e M a r g i n a l P r o d u c t i v i t y of F i n a n c i a l Management • 4.6 E s t i m a t e s o f t h e M a r g i n a l R e t u r n s - P r o f i t E q u a t i o n w i t h F i n a n c i a l Management V a r i a b l e 4.7 H u f f m a n ' s E s t i m a t e s o f R e t u r n s t o E x t e n s i o n i n t h e U. S. A 4.8 Huffman's New E s t m a t e s o f R e t u r n s t o E x t e n s i o n i n t h e U. S. A. - 1964 D a t a S e t 4.9 Summary S t a t i s t i c s on M a r g i n a l R e t u r n per Farm by V a r i a b l e P r o f i t G r o u p 4.10 Summary S t a t i s t i c s on T e s t S c o r e s and V a r i a b l e P r o f i t Groups 4.11 Summary S t a t i s t i c s on E x p e c t e d P r o f i t due t o t h e Program  35 37 41 43 69 70 72 72 79 81 83 84 88 92 93  L I S T OF APPENDICES B. 1 P r o f i t , C a p i t a l F l o w s a n d Wage Rate 1980 D a t a i n 1981 D o l l a r V a l u e C. 1 M a r g i n a l R e t u r n p e r Farm $300-$9000 G r o u p C.2 M a r g i n a l R e t u r n p e r Farm $ 10000-$20000 G r o u p C.3 M a r g i n a l R e t u r n p e r Farm $30000-$40000 G r o u p C.4 M a r g i n a l R e t u r n p e r Farm $50000-$90000 G r o u p C. 5 M a r g i n a l R e t u r n p e r Farm $ 1 00000-$400000 G r o u p D. 1 E x p e c t e d Change i n P r o f i t Due t o T r a i n i n g Program $300-$9000 G r o u p D.2 E x p e c t e d Change i n P r o f i t due t o T r a i n i n g P r o g r a m $ 1 0000-$20000 G r o u p  114 116 117 117 118 118 120 121  vi i i D.3 D.4 D.5  E x p e c t e d Change i n P r o f i t due t o Program $30000-$20000 G r o u p E x p e c t e d Change i n P r o f i t due t o Program $50000-$90000 G r o u p E x p e c t e d Change i n P r o f i t due t o Program $ 1 00000-$400000 G r o u p  Training 121 Training 122 Training 122  ix ACKNOWLEDGEMENTS I  wish  t o express  to  D r . R.  is  acknowledged  of  the  until  B a r i c h e l l o , my  his  later  for  stages  of  Kennedy  a n d D r . Tom  to  of of  wish  workshop  of the data also  Mrs. Carol  Dr.  conceptualization of the t h e s i s Graham  i s  and a s s i s t a n c e i n  after  Dr.  be  extended  must  for  Barichello  Barichello's  D r . Ken W h i t e ,  providing  their  to  other  Dr. George time  and  on t h e d r a f t .  of f i n a n c i a l  collection I  thesis  appreciation  John  guidance  a r e due t o t h e M i n i s t r y  a l l the  and  Dr.  committee:  Sork  and  and s u p e r v i s i o n  valuable  this  thesis  comments  Thanks  thanks  supervisor.  Yale.  Acknowledgement  of t h i s  provision  to  his  members  valuable  thesis  methodology  departure  departure.  sincere  f o r h i s encouragement  problem,  acknowledged the  my  and r e s e a r c h instructors for this  t o acknowledge  Clark  support. who  I am  for  the  indebted  made p o s s i b l e t h e  research. the support  a n d Mr. R i c k  A g r i c u l t u r a l Economics.  of A g r i c u l t u r e  Lymer  and  dedication  , i n t h e Department  1  CHAPTER  I  INTRODUCTION  Traditionally, built  on  the  aggregate  example, and  In  stock  employed  1950's  empirical  indicated  that  currently  being  productivity. changes labels Some  in as  of  results  factor  (1958)  time  variable  accounted  improvements  and  factors.  data  f o r the years  per  worker  cent  of  or  advance  attibutable  hour  increase  i n knowledge. t o an  as  and  of  in  unexplained  been  to  they  the change  the  have  a  into  proxy  given  such  ignorance."  measure  factor  and  of  speedups  of  the model  that  production change.  concluded  the  level  the  labor  force,  to United  States  that  interval,  remaining  i n the  the  for technical  attributable  The  increase  of  early  below.  over  being  be  were  attempt  applied  doubled  labor  as  i n the education  1909-49  both  for  data  measure  f o r slowdowns  Solow  model,  States  fact,  introduced  variable  economy,  the  that  in  United  productivity  studies  used  quantities)  little  "the  of  that  inputs,  this  function  i n the  labor  of  been  However,  on  explained  are discussed  a  other  and  "the r e s i d u a l " or  Solow  aggregate grows.  a  growth  requires  based  recognition  total  productivity  This  in  have  labor  (1940)  simply  t h e economy  measured,  these  function  growth  is  and  Harrow-Domar  capital  In  output  capital  (measured  as  growth models  that  of  the  equilibrium  capital  fully  assumption  quantities  production.  economic  gross with  output 87.5  to technical 12.5  change  percent  of c a p i t a l  per  used.  was  2  Jorgenson data  for  the  United  increased  input  rate  growth  of  quality growth growth  of  Sato  saving 60,  ratio  holds  tangible  for  with  development  and  the  fact  the  the  advance  after  correcting  for  the  is  in  is  ratio  in  the 1919—  limited  to  savings  research for  and  health,  conventionally  conclusion  the  of  Kendrick  is doubtful  1919,  of  factor  the  with  in  1919  rate  between  if  it  rate  decline  particularly  then  the  year,  savings  included  cent  total  economy,  decline  investment  the  that  was  based  net  the on  tangible  acceleration  in  indirectly  confirmed  which  substantially  grew  by  1919. Nelson at  technical argued  are  the  same  that the  in  investments -  1945-65  of  of  observed  a l l . Their  productivity  looked  States  investment,  after  intangible  the  that  at  cent  the  argued  ratio  after  that  persons  despite  In  per  stock,  changes  of  They  fell  per  definition  investment  the  96.7  intangible  ratio  capital  rest.  United  i f the  and  that,  and  and  training -  saving  saving  after  in  and  net  However,  change  capital.  associated  defined  output.  concluded  only  education  52.4  labor  using  concluded  explains  explains  (1963)  economy,  explained  output  (1963),  initially  the  use  Griliches States  of in  input  productivity and  use  changes of  and  (1964)  the  sources  change  that  contributors  and  the to  in  a  critical  of  growth  -  of  past  i n t e r a c t i o n between  improved  effects  review  education,  allocation decisions.  upon  GNP  of  technological  the  work,  Nelson  three  principal  change,  improved  3  educational efficiency writes,  standards -  should  and not  l e v e l s , and be  viewed  improved a l l o c a t i v e as  independent.  He  1  Educated people, p r i n c i p a l l y s c i e n t i s t s and e n g i n e e r s , a r e c r i t i c a l i n p u t t o the r e s e a r c h and d e v e l o p m e n t p r o c e s s ; thus the r a t e at which technological understanding i s increased is strongly r e l a t e d t o the number of e d u c a t e d p e o p l e applied to that purpose.... New technological d e v e l o p m e n t s need t o be e v a l u a t e d by p e o p l e i n management who can understand them and who can u n d e r s t a n d the n a t u r e of the market f o r them. I n f o r m a t i o n a b o u t new products needs t o be communicated from the firm t h a t d e v e l o p s them to the potential market by s a l e s men who can d e s c r i b e the p r o d u c t and i t s uses and can answer q u e s t i o n s . In the earlier stages of p r o d u c t i o n b e f o r e the t e c h n i q u e s become routinized, highly trained people are r e q u i r e d t o d e a l w i t h the p r o b l e m s that i n v a r i a b l y a r i s e . . . . F i n a l l y , to close the c i r c l e , one of the i m p o r t a n t lessons we have l e a r n e d from experience with d e p r e s s e d a r e a s and i n d u s t r i e s and w i t h t r a i n i n g and r e t r a i n i n g programs i s t h a t basic l i t e r a c y i s almost a prerequisite for both l e a r n i n g of a new job and l e a r n i n g t o do a new job. Denison States the  economy  (1967) s t u d i e d  f o r the  same t e c h n i q u e  1950-62  of  period findings  education  of  labor  the  analysis  and  Denison's  periods  labor  of to  1950-55  indicate force  enough t o c o n t r i b u t e  50  the  g r o w t h of  the  United  1909-57. He  also  applied  nine and  that  countries 1955-62  an  r a i s e d the  in  subperiods.  increase  in  average q u a l i t y  percentage  the  points  R. R. Nelson, "Aggregate P r o d u c t i o n F u n c t i o n . " Economic Review (September, 1964) pp. 591-592  to  the of the  American  4  United  States  40  percent  the  United  Kingdom, only  A  all  20  the  the  effect of  management,  improvements to  For  about  program.  in  the  work on  affect  by  of such  production  food  large part extension  as  earned  prices. of  use  in France  and  Netherlands  and  Germany.  on  from  output  of  these growth  inputs  and  existence  of  improvements  in  the  g o o d s , and  present  i n the  of  improvements  in  choices  farmers  increased  improved by  and  research on  extension allocative  extension  t o c o n s u m e r s . In  extension yield,  quality.  the  world  different  efforts types  the with  direct  costs  addition,  Many c o u n t r i e s a r o u n d developmental  in  general,  includes  reduced In  from  associated  consumers  of  may  hybrid corn  and  services  which  and  some f a r m e r s  their  also  make. E v i d e n c e  payoffs  and  are  t h r o u g h an  farmers  are  we  force  technical  (1958)  there  study,  labor  education  agricultural  and  incomes a r e  the  Griliches  programs t o  benefits,  was  follows  form  agricultural  U.S.A., i n d i c a t e s t h a t  value  of  improvement  will  the  input  in c a p i t a l  result  efficiency  extension  the  that  the  purpose  a  This  productivity  in  amount  p h y s i c a l q u a n t i t i e s of  improvements  as  seminal  percent  i n Denmark and  of  the  education.  the  concerned with come  30  1962,  Q u a l i t y c h a n g e s come from  progress  l a b o r due  to  Italy,  conclusion  effect  qualities.  1950  percent  technical  in  from  10 p e r c e n t  general  i s that  includes  rate  i n B e l g i u m and  Norway, and  studies  growth  face  of  higher lower  today devote to and  a  providing forms  to  5  different  groups  Expenditures were 1971  1.1  21.6 and  on  The program Canada  to and  General  been 83),  a  a  the  through and  3  The  dates  in  federal  rural  result f o r the in  2  in  past the  designed  financial  farmers,  of as  training  to  1974  and  program  of  basic  that  of  has  ( 1 9 7 9-  principles  management,  part  -regions  there  years  those  the  would programs  rural  Management for  a  provincial  agreement five  when  signed  development  the  Financial  auspices to  Canada,  dollars  Columbia  of  the Food  study  a  is especially skills  million  potential  This  in  Programmes  British  and  course  which  36.0  economic  Columbia,  Project,"  programs  development  agriculture  management.  Agriculture  new  economies.  f i n a n c i a l management  Agreement.  specialized  delivered  the  of  C o l u m b i a . As  limited  their  1974.  province  financial  with  in  in this  improving  in British  1959,  Management  of  a g r e e d on  selected  British  of  evaluated  Development  thereby in  history be  in  dollars  Financial Columbia  the  governments include  ($U.S.)  million  H i s t o r y of in B r i t i s h  sectors  a g r i c u l t u r a l extension  million  36.6  or  of  Training farmers has  been  Ministry  of  what  i s known  Boyce and E v e n s o n , T a b l e 1.1, 1.2, 2.1, a n d 2.2 i n W. E . Huffman, "Returns t o E x t e n s i o n : An Assessment," Research a n d E x t e n s i o n P r o d u c t i v i t y i n A g r i c u l t u r e , e d . A. A. A r a j i , pp. 101-140. Moscow: U n i v e r s i t y o f I d a h o , 1980 M i n i s t r y of A g r i c u l t u r e , A g r i c u l t u r e and R u r a l Development ( C a n a d a - B r i t i s h C o l u m b i a , J u l y 8, 1977) p . 2 " Ministry of Agriculture and Food, 1982 A n n u a l R e p o r t ( P r o v i n c e o f B r i t i s h C o l u m b i a ) , p . 15  2  3  6  as  a  Subsidiary  Development Project.  (ARSDA)  The  committee British  this  project  Columbia, and  There  The Scott  in  i s the  the  Farm  members  British Ministry  Management  to  of  of  the  Columbia of  and  a  Training management  University Federation  Agriculture  e v a l u a t e the  Rural  and  Food  effectiveness  of of and of  program. need  his  Agricultural  the  Agriculture  responsibility  by  i s a mandate  extension  on  funded  represented  Agriculture others.  Agreement  for a  project  "Notes  on  P r o d u c e r s " . He  of  this  Financial writes,  nature  i s noted  Management  by for  5  T h e s e w o r k s h o p s on f i n a n c i a l m a n a g e m e n t recognize the changes t h a t have taken place in agriculture in the last 40 years, and the necessity for the f a r m e r s t o have a h i g h degree of skill in financial management. Since 1940, the average investment in farms has increased forty to f i f t y times. This fact requires farmers to borrow huge amounts of capital to invest i n the farm b u s i n e s s . Originally this money could be borrowed on the basis of s e c u r i t y but that is not sufficient a n y m o r e . Now a borrower a l s o r e q u i r e s a d e m o n s t r a t e d a b i l i t y t o manage d e b t a n d p r o d u c e a p r o f i t from owners i n v e s t m e n t with backing of the lender. Farmers today g e n e r a t e a l o t of c a s h but i n p u t s are e x p e n s i v e and net p r o f i t from the sales dollar has shrunk from 65% t o a b o u t 18% o r l e s s in 1979.Because of the n a r r o w m a r g i n s f a r m e r s must p r e p a r e accurate budgets, control costs and c o n t r o l the flow of c a s h .  5  H. A. Scott, "Notes Agricultural Producers" Management P r o j e c t , 1981),  on Financial Management for (British Columbia Financial p. 1 (Mimeographed)  7  At objectives  the  of  federal  the  (a)  and  provincial  ARDSA agreement a r e  identify,  unexploited  research,  to  plan  projects related  levels,  the  : and  pursue  to the  new  or  development  opportunity; (b) of  expand employment the  in B r i t i s h  production  and  improve  industries Under to  this  existing  a g r i c u l t u r e i n d u s t r y and  industry  (c)  in those  Columbia  market  the  food  which  potential,  viability  of  the  aspects  processing  demonstrate  and existing  to s u s t a i n growth  agreement,  the  province  of  British  Columbia  is  undertake: (a)  research,  promotion  planning,  to h e l p  opportunities and  and  and  market  develop  province's  new  agricultural  food-oriented industries  co-operation develop  the  rangelands  being  of  support  management  resource  potential  resource  p r o j e c t s and  assist  other  which are  allocated  to a s s i s t  resource  grazing  (c) p r i m a r y  and  identify  f o r the  (b) c o o r d i n a t e  (d)  training  best  of  development  -  the  to  Crown  with  and  livestock funds  drainage  projects  s e r v i c e s and  secondary  users  suited for  for i r r i g a t i o n  other  - with  food  community  developments  processors  in a g r i c u l t u r a l  support  services  8  w h i c h a r e needed t o improve stability  and t o c r e a t e  his  "Notes  Producers"  6  on  Financial  w r i t e s about  economic  jobs  In terms o f t h e o b j e c t i v e s in  rural  of t h e p r o j e c t ,  Management  the program  Scott  for Agricultural  i n the f o l l o w i n g  way :  The objective of the [Financial Management T r a i n i n g P r o j e c t ] i s t o g i v e ' a g e n e r a l u n d e r s t a n d i n g of the purpose of f i n a n c i a l management and what i s involved i n that f u n c t i o n f o r ownero p e r a t e d farm b u s i n e s s . In d o i n g so, [the course conveys . the necessary] information required for financial management purposes and how this information is assembled into s t a t e m e n t s t h a t p e r m i t t h e manager t o : make better investment decisions; monitor and control operations for profit; manage cash; determine e f f e c t ahead o f t i m e on p r o f i t and c a s h flow of changes i n o p e r a t i o n s , f i n a n c i n g or investment portfolio; analyze the business for strengths and weakness; and a n a l y z e t h e b u s i n e s s f o r g r o w t h i n a s s e t s and e q u i t y . The days  project  in duration offered  different levels  basics  levels:  from  an  of f i n a n c i a l  concerned  with  in detail  analysis,  Ibid.  a  of c o u r s e s commodity  These e n a b l e  management,  the  such  a  level,  to  application level  basis  which  as i n v e s t m e n t  an of  at  and  farm  manager  financial  analysis,  level  management  more  specific  farm and  to  with the  intermediate  covers  three  advanced  dealing  business organization a l t e r n a t i v e s  , p. 1  o f two t o f o u r  intermediate  introductory  t o o l s a n d an a d v a n c e d topics  on  beginning,  of u n d e r s t a n d i n g .  progress  6  consists  business  marketing.  9  Unlike  other  visit  system,  delivered and  the  p r o g r a m s , w h i c h a r e o f t e n b a s e d on a present  i n a classroom  after  Another of  extension  the  courses  situation.  training  important  is  throughout  the  a t remote l o c a t i o n s .  which  i s the i n t e r e s t  worksheets,  income  statements,  balance  According  result  income  from'the  estate  of and  concepts.  information  assist  assess  them  relative  routine  alternative estate  study,  Columbia,  at l e v e l I, farmers  statements,  are  production cash  net worth statements,  flow partial  planning. i n t h e farm to  management  producers  In  flow,  order  to  are  business.  This  evaluating  flow  and  t a x and  make  the  operation  of  effective flow  techniques,  extremely  important  in assisting  business  o r g a n i z a t i o n i n order  on a  position  financial  allow  them  to  and c o n t r o l t h e and  resources.  the  of  information  firm's  farm,  forcontrolling  of  area  l i k e l y to  needs a  p e r f o r m a n c e o f t h e farm  strategies  planning  scheduling  of  to i t s objectives, i t w i l l  of  to  participant.  p e r t a i n i n g to the f i n a n c i a l  in  being  prior  of B r i t i s h  manager o r f a r m e r  of t h e i r  t h e economic  daily  each  costs  expense  benefits  accurate  position  keeping  to experts  the f i n a n c i a l  will  is  test  4-day c o u r s e  i n c r e a s e d use o f c a s h  planning  activities  to  present  sheets,  decisions  and  given  In t h i s  a n d t a x and e s t a t e  additional  A skills  province  of the  techniques  budgeting,  effort  f e a t u r e of the p r o j e c t i s the  often  taught  extension  other  producer's  evaluate Tax  and  hand,  are  choice  of  t o r e c e i v e maximum b e n e f i t s  10  from  1.2  existing  t a x and e s t a t e t r a n s f e r  laws.  The O b j e c t i v e of t h e Study The  the  objective  effectiveness  program on farm taken  of  of t h e p r e s e n t  study  the  management e x t e n s i o n  financial  is  to  p r o d u c t i o n and incomes f o r t h o s e  the course  and more g e n e r a l l y  assess  who  have  f o r farmers  in British  for  evaluation  Columbia. There exercise:  First,  encourage material  and  oriented  such  the  the  changes  of  program.  Secondly,  the  in agricultural  satisfactory  i t pays  to  another  aspect  present  would  l e a r n e d from is  form  prove  this  particularly  of  training  r a t e s of r e t u r n ,  activities  from  a r e i n most  cases  productivity  invest  in  then  makers  extension  makers  as  to  s h o u l d be  agricultural  training  program p r o v e s  to y i e l d  additional  profitable  to  program can then important  and  of the e v a l u a t i o n  be  when,  Agricultural  Ministry,  e x t e n s i o n budgets  with  programs  such as a g r i c u l t u r a l  other  format,  use s c a r c e r e s o u r c e s , p o l i c y  present  the  could  benefits  such c o u r s e s and how much s u p p o r t  this If  course  of the c o u r s e  i s to provide information to policy  to  lessons  the  extension a c t i v i t i e s  Therefore,  value  given  of  and r e v i s i o n  keen t o know whether  exercise  This  assessment  activities  activities.  such  the  reasons  presentation.  measured t h r o u g h  are  two  an improvement  production  since  are  funding  s o c i e t y and generalized. within  have  to  to  price  the  compete subsidies  11  and  other  must  services.  compete  highways, health  with  other  In  and  social  the  light  hypothesis  is  tourism,  of  the  and  the  specifically,  these  programmes and after  a  their  financial  above  skill  in  may  be  level  on  as  education,  learnt may  the  null  in  be  ,  the  financial  production,  British  management t r a i n i n g  Statistically,  such  discussion  skills  effect  farmers  skills  categories forestry,  postulated:  significant  of  allocations  welfare.  management have a profits  these  budgetary  transportation,  services  following  Outside agriculture  incomes  Columbia.  through  More  extension  judged p r i o r  to  and  programme.  h y p o t h e s i s may  be  stated  as Ho where  B  is  financial null  : B =  a  parameter  management  hypothesis  have  any  is that  is equivalent  skills  do  i n c o m e s . In this  : B >  have the  parameter  a  on  the  profit.  In  effect other  management  production  words,  skills  and  of  do  incomes.  the the not The  becomes 0;  to  saying  that  significant  analysis is  on  financial  effect  hypothesis Ha  measuring  skill  significant  alternative  which  0  judged.  that  financial  effect  follows  the  on  management  production  significance  and of  1 2  1.3  Organization In  define  the  the  of  program.  in  improvements  of  the  chapter  of  the  These  Thesis  present  being  technology  the  purpose  improvements result  of  this  labor  better  farmers  training  in  select.  Financial  Management  Training  Columbia  are  The  program 2  a  in financial  review  education the  of  and  of  conceptual  model  this  are  study  problems  and  sections,  the  theoretical  economic  literature  extension  theory  in  programs  production t o be  the  possible choice model d e v e l o p e d  of  training  a  basis 3,  data  i t s source,  variables.  in Chapter  effects  studies. are  derived  pooled the  In  this f o r two  i n an  empirical  chapter  results the  different  attempt model  data  sets.  on  of  t o d e r i v e more r e l i a b l e is  extended  to  in  the and  Chapter  education  formal  The  used  for  In  compared  results  the  discussed  the  the  for  subsequent  forms  2 are  of  collection  In  4,  a r e measured and  Chapter  A review  considered.  profits  In  e v a l u a t i o n methods of  functional  allocative  Farm  of a  i m p l i c a t i o n s for e s t i m a t i o n are and  the  British  the  technical  the  in  i s presented.  of  to  objectives  of  a l s o noted.  provides  measurement  and  importance  i n t e r m s of  lead  affecting  particular  a  extension  will  and  d e r i v e d . In C h a p t e r  presented  discussing  an  origins  on  to  come about as  by  general  management was  the  by  education  The  in  attempted  through  efficiency  programs  noted.  thesis  educated  productive  which  have  f o r c e w h i c h may  improvements  in  we  data  with  on  past  education are  estimates  incorporate  also and the  1 3  financial then  used  training Columbia.  management  variable.  in projecting  the expected  i n f i n a n c i a l management In  recommendations  Chapter  The  5  i s provided.  a  on  results effect  farm  summary  obtained are  of the  profits of  present  in British  findings  and  1 4  CHAPTER I I THE  THEORETICAL FRAMEWORK FOR ASSESSING RETURNS TO HUMAN CAPITAL The  a  purpose  g e n e r a l framework  human c a p i t a l non-formal  either  of the p r e s e n t c h a p t e r  i n t h e form  education  literature  extension. general some  aspects  cost  such  study  of  the  to  theory  minimization  and  of t h i s  education  chapter  evaluate i n order  or  o r onreviews  education  and  to h i g h l i g h t the reviews  briefly  o f p r o d u c t i o n and d i s c u s s e s  light profit  of  output  maximization,  maximization  a c o n c e p t u a l model t o s u i t  the  objectives.  purpose  of  this  i s derived.  Literature  Review educational  p r o g r a m s may b o t h  as such  expected  and  examined  and e x t e n s i o n  a s a form  the s k i l l s  type  of l e a r n i n g  of a p a r t i c i p a n t  they a r e complementary  to  each  o f some o f t h e s e p r o g r a m s a r e  section.  Models a s s e s s i n g extension  be v i e w e d  the e f f e c t i v e n e s s  in this  programs  t o improve  t h e s e p r o g r a m s . As such  other  section  section,  i n the  education  in  formal  of the p r o d u c t i o n p r o c e s s ,  Formal  and  second  of  as e x t e n s i o n a c t i v i t i e s  attempts  behaviour  Finally,  2.1  The  nature  producer  on  develop  f o r a s s e s s i n g r e t u r n s t o investment i n  t h e - j o b - t r a i n i ng . The f i r s t the  i s to  programs  the  abound  impact  and  will  of  education  certainly  and  differ  1 5  depending  on  objectives  the  and  type,  to  suitable  data  from t h e  simplest  a  practices  by  between  the  of  al.  on  analysis.  most  programs finding  the  the  been  i s the  Such  whether  after  activity  a  certain  and by  the  practices.  Smith  concentrated  extension Bennett's  His  evaluation concentrated  the  skill  the  of  s u c h as A.  correlation  reported  and  (1976) c o r r e l a t e d of  and  recommended  Arnott  (1977) h i e r a r c h y of  context  investigators,  Indian  news,  the  reports  180  Benor e t . a l .  observation,  adoption  on  Harker(l974)  schooling  Brunner  after (1982)  evaluation.  r e a c t i o n s , knowledge  and  levels. Within  order  through  the  time This  e t . a l . (1982) u s e d q u e s t i o n n a i r e s  of on  with  being  of  many r e s e a r c h e r s .  of q u e s t i o n n a i r e s . Opare  patterns  are  evaluation.  without  production  approach  approved  lapse  P h i p p s e t . a l . ( 1 9 5 4 ) ; and  to  approach.  technologies)  this  dissemination  of  range  approach  certain  (1977) f o l l o w e d use  models  ' f o l l o w - up'  of c e r t a i n  implemented  (1949);  the  evaluation  availability  traditional  out  farmers  extension  p r o c e d u r e has et.  the  (e.g. adoption  adopted  extension,  to h i g h l y s o p h i s t i c a t e d approaches.  extension  This consists  of  large extent  for empirical  Probably assessing  form  of  c o m p l e t e d and farmers the  same  in  on  a  S.  0.36 the  developing few  studies  Murphy, who  reported  between  number  adoption  West  case  countries,  the  of new  Godavary.  correlation  of  0.36  a  by zero-  of y e a r s  of  p r a c t i c e s among  Prodipo for  et. 680  al.  Indian  16  farmers.  In a s t u d y  the  Union  that  the  farmers  for  Territory  and  highest  the  Territory  of  relationship  correlate,  or  His  method  that  (Akinbode,  contact  t o p r o d u c t i o n . An  through are  other  using  effectiveness  the  analysis  to  (1981) a s s e s s e d  and  the  and  program  extension Ojoko through and  in  1969  i n the  Union  very  with  and  simultaneously  (1977)  questions extension  assessed  agents  affecting through  clientele. compared  evaluate  deviations, t-tests  through  and  and the  their  correlational  production.  Oakley  conversation  submitted  e a c h g r o u p were  this  staff  questionnaires  ratings  extension  i s to  the  the  between  relate  (1979) a s s e s s e d  staff  and  method  statistics  staff  strong  table  agricultural  Opeke  factors  extension by  1975)  extension  using d e s c r i p t i v e assess  practices.  Responses to p a r t i c u l a r  techniques.  primary  i s to count  have had  (1975) e v a l u a t e d  of  used  extension  clientele  observation  farmers  g r o u p means, s t a n d a r d  correlation  a  found  adoption.  alternative  the  with  results  showed  in  illiterate  new  distribution  Asmar,  questionnaires.  r a t e d . Uwakah  staff  1969;  and  and  of  villages  frequently  a frequency  agents  six  of  farmers  same  results  between e d u c a t i o n  the c l i e n t e l e  proportion  most a d o p t i v e  from  villages  Sanharan P o t t y  p r o p o r t i o n of the  number of c o n t a c t s  both  S.  work r e p o r t s t h e  Delhi.  use  from t h r e e  V.  lowest  farmers  Another  the  the  s c h o o l i n g was  Indian  farmers  of D e l h i ,  with  Nath Singh's 90  222  village  or h i g h e r Shiva  of  extension  Mean through  and staff  to  scores  both on  analysis  the of  1 7  variance.  Ranter  (1982) and  analysis  by  comparing  program  by  both  Hagle  the  in  (1977) c a r r i e d  the mean s c o r e s extension  (1972) e v a l u a t e d  involved  Young  the  both  staff  on and  ratings  their  of  the  the c l i e n t e l e ;  clientele  extension  out  and  program  the  and  agencies  through  ranking  techniques. In Training from  Project  tests  extension skills in  examining Cahill  given course,  test  approach  Columbia  Financial  q u a n t i f y the  B.  C.  (1981),  farmers  tested  Financial  using prior  for  scores  to  and  obtained  after  of change i n change  (1979) used a c o s t and  benefit  to  by  evaluate  the  British  Management T r a i n i n g P r o j e c t . He  direct  the  the  in attempting  reflected  c o s t s of c a r r y i n g out  program but  h i s study  was  handicapped  could  quantify  the  expected  not  Management  the  significance  management as  s c o r e s . Haddow  analysis  to  to  in f i n a n c i a l  the  the  by  the  long-run  the  was  able  extension  fact  that  he  b e n e f i t s of  the  project. Ajari an and  attempt  (1980) a p p l i e d c o s t  to estimate  future research  agricultural cotton)  and  the  and  commodities analyzed  the  and  r e t u r n s to extension (sheep,  impact  benefit analysis in  investment programs  vegetables,  for  of c o o p e r a t i v e  extension  e f f e c t i v e n e s s i n t h e W e s t e r n R e g i o n of  States.  Ajari  without  extension An  are  that  lower  alternative  than  the those  payoffs with  several  potatoes,  research  concluded  in current  the  from  and on  United research  extension.  method of a s s e s s i n g t h e  effects  of  18  education  and  variable (1977), step to a  as  extension  another  Fane  determine second  input  (1975)  procedure.  i s the  and  input  the e f f e c t  between  (1975)  of  function  education and  Huffman  followed  and/or cost  optimum  education  function.  have  a production  t h e optimum  discrepancy  a production  Khaldi  First,  stage,  of  i n t r o d u c t i o n o f an  is  two-  estimated  levels. in  a  Then,  reducing  in the  observed  levels  is  o f U.S.A.  Corn  Belt,  and  1960,  measured. Huffman concluded  that  allocated  to  work) in at  and  (1974),  extension crops  education  hybrid  corn  earlier  doing  that  Huffman  reports  of are  the  function variable  activity,  time  contacts reviewed  direct steady  agricultural  (Huffman,1976)  agent  in  of  several  days  activities work,  studies and  by  agents  production.  that  have  have  measured  per extension o r dummy  3  contributed  expenditure  agents  arrived  allocated  agricultural  approach dollar  fertilizer  per  used  a the  extension  activity,  number  variables.  These  below.  Brazil contacts year,  also  livestock  level  extension  Patrick Eastern  He  and  expenditure  with  f o r 1958  primarily  agricultural  to  extension  doing  extension  to crops  significantly  production  agents  average  are substitutes to nitrogen  primarily  (1980)  (days,  production.  the c o n c l u s i o n  years  by  i n h i s study  et. and  of had  a l .  (1973)  concluded  farmers  with  political  conducted  that  extension,  extension but  a  agents  generally  study  in  number  of  during  the  not  a  19  statistically production. extension  significant  Evenson and  program  the  extension  contributed  positively on  are  farms. Halim  index  of  the  with  the to  complement  output  and  i n the  using  Indian  a that  fertilizer application found  farmer,  to  was  production  agriculture  is  that derived  previous  relatively  75  year  interacts  over  to  the  extension  5  by  agricultural  high  marginal  barrios,  rice  the  while  extension  were  in found  production.  function  percent  an  years,  s u b s t i t u t e d by  increasing  65  found  extension  developed  in  Kenya, during  significantly  less  research  that  the  schooling  each o t h e r  (1974) found  in  with  that  extension  with  in  Phillipines,  contact  of  that  farm  agricultural  yields;  b a r r i o s , s c h o o l i n g and  also  Chaudhuri  corn  implied  effect  developed  Finally,  an  to  study  in  found the  interaction  nitrogen  i n the  of  production,  efforts  to  added  of  farm o p e r a t o r s  contact  positively  extension  maturity  in a  with  (1977),  frequency  The  India,  through  r a t e of  contributed  return.  in  s u b s t i t u t e s , and  extension  weighting  (1973),  (1976,1978), contacts  with  value  of  significantly  education  on  significantly  change o n l y  p r o g r a m s . Mooch  and  index  contributes  productivity  that  e t . a1.  effect  approach,  variation  explained  by  in  education  alone. In extension from cost  simple and  reviewing  evaluation  the  i t i s noted  "follow-up" benefit  literature that  techniques,  analysis  to  ..on the  education procedures  correlation the  use  of  and range  analysis, production  20  functions. For  Each t e c h n i q u e  example,  collection both  it  extension  use  of  the  incorporates activities,  s u c h as  social  production be  the  been  without as an  assumed  impact  of  applies  the  some  of  extension  p r o g r a m may  existing  knowledge  except  Cahill  extension capital uses test a  explicit  (1981),  due  test  s c o r e s on  sample  of  significance. effect  of  financial  because a inclusion  or  farmers,  an The  index  so  it  w i t h p r o d u c t i o n and  The  that for  these  parameters  want t o management  will  investigate skills  prior  the  of  the  an  of human  and  study these  incomes be  an  studies,  in this  skills  the  criticism  substitute  management  has  captures  following  adopted  can  r e s e a r c h or  of a c c u m u l a t i o n  approach  of  function of  none of  also  use  t o measure t h e e f f e c t  financial  Hence, we  The  s t u d i e s : to the extent  attempts  farmers.  extension  o u t l a y s and  incurred.  the  The  because i t  i n the  residual  the  scores are c o r r e l a t e d  useful  an but  program.  unexplained  complement  to t r a i n i n g .  commendable s u c c e s s of  In d o i n g  these  program through  is  variable.  However,  of  e v a l u a t i o n of  the  capital  useful  independent  extension.  to  be  the  that  and  require  the c l i e n t e l e  incurred  benefits  f u n c t i o n s can  fitted  extension  salaries,  not  the  c o u l d be  costs  and  that  implements  analysis  direct  costs  fact  o n l y depend on  p l a n s and  benefit  may  clientele  the  disadvantages.  simultaneous  the  p r o g r a m does not that  technique The  and  acknowledges  of c o s t and  some  data.  staff  staff  a d v a n t a g e s and  "follow-up" hard  extension  because  also  the  has  for  tested  for  possible  t o and  after  21  the  training  on f a r m e r s '  2.2  The Economic Any  inputs  production  then  different various  that  certain inputs  cannot  desired  economic  for  use.  managerial other  that,  Buildings, personnel  fixed  fixed  readily  number  be  of o u t p u t . in  the  generally  variable order In  study  production  to  it  i s not  the l e v e l of  equipment,  into this  a  of f i x e d  category.  whose  and On  quantity,  i n response to  a r e many t y p e s  i t  of l a b o r  that  the  o u r sample, a r e c o n c e r n e d  with  d e c i s i o n s , thus combining  t o produce  whose  inputs.  constitute  with  produce  those  run,  may be c h a n g e d a t low c o s t  the present  inputs  usually  response  t o change  a r e those  and m a t e r i a l  short-run  in  and  fall  services  who  is  to  are  short  machinery  c h a n g e s . Examples o f t h e s e  producers,  It  The a s s u m p t i o n  of reasons  desired  In  of  Some o f t h e s e  inputs  inputs  changed  hand, v a r i a b l e i n p u t s  the s h o r t - r u n ,  fixed.  variety  output.  level  a  a  and c a p i t a l .  are  the  definition,  recognizes  their  with  q u a n t i t i e s of  quantities  requires  t h e v a r i a b l e i n p u t s c a n be combined i n  proportions  By  in  process  a r e v a r i a b l e and o t h e r s  assumed  and i n c o m e s .  Model  s u c h as l a b o r , m a t e r i a l s  inputs  the  production  a specific  various theory,  is  assumed  different  quantity  q u a n t i t i e s of  of f i x e d  input  q u a n t i t i e s of a g r i c u l t u r a l a producer  in  output.  i s assumed t o o p e r a t e i n  22  stage the  two  of  first  inputs  physical  stage,  and  physical  but  only  this  study  the  second  marginal  while  of b o t h  of  the  efficient  one,  two  Optimal  in  or  which  resources.  A  and  In t h e  an  stage,  inputs the  second  producers  is  marginal are  marginal  is negative.  i s the  fixed  input  the  variable  producers  of  Thus,  stage.  In  operate  may  in  operate  in  Resources  to a given  producer  for a  Output  should  optimal cost,  (3) maximize  optimal combine  resource (2)  use  minimize  profits.  Situation  maximizing  f o l l o w i n g problem  F ( K , L ) - X(rK  an  given  output,  d i s c u s s the  producer  to achieve  subject  Constrained  briefly  individual  cost  max  stage,  third  region  s u b s e c t i o n we  producer  f a c e s the  variable  of  In  three.  (1) m a x i m i z e o u t p u t  A  the second  inefficient  may:  2.2.1a The  of  successful  Combination this  production.  p h y s i c a l product  fixed  economic  stage,  of  v a r i a b l e inputs  i t i s assumed  In  cost  that  decreasing.  product  the  manner  the  stages  i n c r e a s i n g . In t h e  products  positive  2.2.1  three d i s t i n c t  i s negative  positive  stages  the  output  subject to a  given  :  + wL-  C)  (2.1)  23  where F ( K , L ) labor the  L  i s the production  as i n p u t s  and C i s a g i v e n  p r i c e of c a p i t a l  attained being  function  with c a p i t a l  cost  K  and  expenditure,  r is  and w t h e wage r a t e . Maximum o u t p u t i s  when t h e e q u i l i b r i u m  first-order  conditions  met:  ( 3 F / 3 L ) / ( 3 F / 3 K ) = w/r.  In  other  require input  words,  that  4  *k  F  a  be  be  the  require  Hessian  0  in equilibrium,  the marginal  must  conditions the  same  that  determinant  for  the necessary per  each  the q u a d r a t i c  dollar's  input.  conditions worth  of  The s u f f i c i e n t  form a s s o c i a t e d  with  ( i = 1,...,1)  kk kl  (2.3)  F  &L  FJJL  definite.  2.2.1b The C o n s t r a i n e d If subject  problem  product  (2.2)  ?L  negative  cost  are  the to  a  Cost  Situation  objective given  of the producer  level  of  i s to minimize  production  then  the  becomes:  min  rR + wL - X( F ( R , L ) - Q )  (2.4)  24  To  meet  case  of  2.2.1c  this  goal,  maximizing Profit  where  producers the  output  profit P  =  subject  the  same as  to a given  cost  maximization,  f(Q)  , Qf(Q)  total  requirements are  in  the  cost.  Maximization  For case  the  is  i s the  the  total  consider  demand  function  r e v e n u e , and  function. Profit,  (ir)  the  C =  general  facing A  +  , is therefore  the g(Q)  defined  as  = Qf (Q)  Tr  Profit  i s maximized  dn/dQ  and  the  second  =  9 TT/9Q  In  other  equals  may value costs  f(Q)  be  evaluated  product are  of  are  attempting  =  0  (2.6)  require  that  and  i n the  In  the  sufficient cost  curve.  empirical inputs the  production  t o be  (2.7)  m a x i m i z e d when m a r g i n a l  marginal  examined.  in organizing  g'(Q)  are  various  that  (2.5)  = -g' ' (Q)<0.  2  marginal'cost, sloped  -  conditions  words, p r o f i t s  a positively  - g(Q) .  when  order  2  - A  profit  and  the  conditions These  i t s relation study,  producers  maximizers yet  require  conditions  work where t h e  present  revenue  marginal to  input  i t i s assumed  in  our  sample  are  constrained  25  by 2.3  many  factors.  Choice  and D e r i v a t i o n of t h e C o n c e p t u a l On  theoretical  or v a r i a b l e p r o f i t study. study  The  the m a r g i n a l (gross three the  function  nature  of  using  total  components,  value  to  from  and  allocating  selecting other  the  the ' r i g h t '  product  (education,  sales less  expenditure  i n c l u d e s the l e v e l variables  from  and  education  on  selecting  function  v a r i a b l e includes only  effect  of  factors  selecting  the  with the  be  production  lost.  gross  In  the other  revenue as the  'worker'  effect  between c o m p e t i n g right  the  l e v e l of  a  i n p u t would  the  optimum  and  of  of t h i s  of a l l o c a t i n g  purchased  case  level  effect  of  the  appropriate  In  purchased  in of  the  on  from  hence measures t h e  the  effect  dependent  competing  t h e 'worker' e f f e c t  choosing  But,  production  refers supplied  between  purchased  the  a  being  of e d u c a t i o n (he  t h e s e c o n d component  function,  words,  thereof  inputs.  to schooling including  inputs.  added f u n c t i o n  of  returns  purchased  that  quantity  independent  made  function for a  gains"  as  be  this  to " a l l o c a t i v e  i n p u t s no l o n g e r  to  part  factors  inputs  gains  in  component  words, t h e g r o s s  variable  on a v a l u e  inputs) e f f e c t i v e l y  last  use  (1970) has shown  the f i r s t  t h e worker e f f e c t ) ,  uses,  a profit  of the m a r g i n a l  i n p u t s and p u r c h a s e d  for  restricted  v a r i a b l e expenses) c o n s i s t s of  terms t h i s gains  chosen  of e d u c a t i o n  minus  important  is  a r e many. W e l c h  product  sales  "own"  and e m p i r i c a l g r o u n d s a  advantages  of t h i s  Model  and  uses but  q u a n t i t i e s of other  26  inputs  is lost. An  advantage  (Yotopoulos we  can  functions  the  a  the  bias  that  of  that  is  study,  industry  and t h a t  of  by l e t t i n g  a vector fixed  factor  to  an  explicitly  i s derived  variables  functions firms  under in  the  a r e exogenous  because  associated  under  occurs  they a r e  and t h e s i m u l t a n e o u s  usually  demand  equations  with  production  does not a r i s e .  present  be  demand farm  forces  In d e r i v i n g  start  and  maximization  independent  the  function  t h r o u g h S h e p a r d ' s Lemma  supply  profit The  by market  problem  profit  recourse  and d e r i v e d  behaviour  functions  a  f u n c t i o n . The'system  competition.  determined  of  having  production  s y s t e m of s u p p l y to  system  without  assumption  perfect  using  e t . a l . , 1972) i s t h a t  derive  specified  of  profit  we n o t e t h a t  A  function  Y be a v e c t o r  or  model  agriculture is a  farms a r e o f t e n  of m v a r i a b l e  inputs  variables.  a  inputs  firms.  including  Thus,  products,  (m > 1) and Z be  endowments,  multiproduct  multiproduct  multiproduct  of 1 > 1 f i n a l  f o r the  human  transformation  X  a.vector capital  function  is  defined as:  G ( Y , , . . . , Y ; X,,...,X ; Z x  This  transformation  general products.  m  function  relationship  may  between  For estimation  be u s e d inputs,  ZJ  = 0  to  (2.8)  describe  extension  p u r p o s e s , however, t h e  and  the final  production  27  function the  must  implicit  be s e p a r a b l e  production  (Hall;  1973),  i n t h e sense  f u n c t i o n c a n be s e p a r a t e d  that  into  two  parts:  H(Y ,...,Y ) = F(X,,...,X ; 1  where  H  1  i s a f u n c t i o n of f i n a l  of v a r i a b l e i n p u t s Since in  which to  1973).  In o t h e r  marginal  inputs and  inputs  satisfy  marginal  and d i m i n i s h i n g  a proper  concave  producer  maximizer,  then  (while  assumed  to  marginal  choose  inputs a  (3)  is  for  The r e s u l t i n g  of  from above  prices  fixed),  maximum  only  i f the p r o f i t is  nonincreasing  that  in  fixed  variable  which  depends n o t p r i c e s but  results  function and  profit  plan  and o u t p u t  convex  the  the producer i s  profit  i n p u t s . These  of  function  of  production  of v a r i a b l e input of f i x e d  inputs,  i s a competitive  are  feasible  homogeneous i n p r i c e s , (2) prices,  outputs  diminishing  f u n c t i o n . On t h e a s s u m p t i o n  other  obtainable  to e x h i b i t  r a t e s of s u b s t i t u t i o n  vector  are  (Diewert;  of s u b s t i t u t i o n of outputs f o r  f o r a given  on t h e v e c t o r  technology  conditions  of  sample  also  a  run, F i s  regularity  our  on t h e v e c t o r  on  i n the short  F i s a continuous  of  maximizes p r o f i t s . only  fixed  rates  and F a f u n c t i o n  inputs.  words, F i s assumed  inputs.  inputs  fixed  are  the  for  typical  products,  r a t e s of t r a n s f o r m a t i o n  increasing outputs,  and o t h e r  (2.9)  n  our i n t e n t i o n i s t o f o c u s  some  assumed  Z,,...,Z )  m  however  i s (1) l i n e a r continuous  inputs  in  f o r every  28  fixed  p r i c e and  inputs in  (4) i s  f o r every  fixed inputs.  of if  and  continuous  f i x e d p r i c e and assumes In o t h e r  (1971) has shown, t h a t between  concave  words  there  i t i s assumed,  i s a one-to-one  t h e s e t of c o n c a v e p r o d u c t i o n  convex p r o f i t G(.)  is  functions.  well  and t h e s e t  (1973) has  profits,  then  by d u a l i t y a w e l l  function  e x i s t s that  prices  of i n p u t  choices  written  correspondence  farm  profit  the l i g h t  as  MacFadden  and  and m a x i m i z e  (defined  as  functions  Or,as Diewert  revenues  fixed  homogeneity  behaved  prices  In  linear  in  firms  face  shown,  exogenous  r e l a t e s maximized p r o f i t  behaved to the  and t h e f i x e d f a c t o r s .  of t h e above c o n s i d e r a t i o n s , less  total  variable costs)  profit c a n be  as  Tr = PF(X, , . . . ,X ; m  where P i s a v e c t o r  of o u t p u t  of  variable  input  are  being  as g i v e n  met  p(9F(X;  Z  Z ) n  - ECjXj  p r i c e s , and C t h e u n i t  j . Assume t h a t  the m a r g i n a l  (2.11) c a n be s o l v e d  f o r the optimal  variable  inputs,  function  variable  inputs  as  a  of  and t h e q u a n t i t i e s o f f i x e d  = F*'(C,  conditions  1, ... , m  Equation  X.*  price  by  Z ) / 3 X j ) = Cj , j=  X*,  (2.10)  Z) j = 1,  ...,m  (2.11)  q u a n t i t i e s of  the  prices  of  inputs,  (2.12)  29  By  s u b s t i t u t i n g  (2.12)  i n t o  (2.10)  we  o b t a i n  a  p r o f i t  funct i o n  =  7r*  Since  fi*(P-;,...,Pj^;Ci,...,  p r o f i t  n o r m a l i z e d  f u n c t i o n s p r o f i t  and  a l l p r i c e s  p r i c e  of  output  e i t h e r  be  inputs  (Lau,  2.4  e d u c a t i o n  and  t h i s and  e x t e n s i o n  review has  of a  ; Zi,... Zu)  homogeneous  can  be  v a r i a b l e  s i n g l e  p r i c e  or  inputs  p r i c e  i n  o b t a i n e d  p r i c e .  a  (2.13)  f  This of  p r i c e s , by  d i v i d i n g  i n c l u d i n g s i n g l e  one  a  p r i c e  of' the  the can  v a r i a b l e  ).  Summary  In on  by  output 1976  l i n e a r  f u n c t i o n  p r o f i t  an  a r e  CJH  of  been  the  study.  In  we  have  reviewed  e x t e n s i o n  on  the  assumption  play  a  theory  of  p r o d u c t i o n  i n  order  c a r r i e d  a p p r o p r i a t e  c h a p t e r ,  out  common  c o n c e p t u a l  t h i s  p r o c e s s ,  to  model a  p r o f i t  r o l e  i n  and  make that  the  l i t e r a t u r e  t h a t  e d u c a t i o n  p r o d u c t i o n . p r o d u c e r ' s  a  c h o i c e  meets  f u n c t i o n  the was  of  A  b r i e f  behaviour the  g o a l  of  c h o s e n .  most t h i s  30  CHAPTER I I I ECONOMIC MODEL, DATA AND The the  economic  sources  used  empirical with  the  model. in t h i s  collection  for  basis  a  the  of  and  In  chapter section  discusses  of v a r i a b l e s . The  of  data  are  regarding form  form  the  is  for estimation  included  some of  model  noted.  In  data  In C h a p t e r appropriate  s e c t i o n 3.2  2 a profit  approach  t o be  multiproduct  firms a multiproduct  given the  vector  typical  of  this  of  the  discussed.  f u n c t i o n of  producer  the  2  allows  empirical  i s discussed  data  needs of  procedure  in t h i s  i n d u s t r y and  human  prices is  used  in the  followed  in  (while  assumed  was  Since  farms a r e  often  transformation  capital other to  chosen  study.  v a r i a b l e i n p u t s and  including input  the  the  f u n c t i o n model  i s a multiproduct  endowments,  on  i s examined.  agriculture  or  and  Some  in  consequently  d e f i n e d as  functional  in Chapter  and  was  and  Model  more d e t a i l  the  conceptual  are  e c o n o m i c model  as  data  made.  economic model d e v e l o p e d  this  discusses  discussed  section this  collecting  upon  Various  this  are  expands  problems a s s o c i a t e d  noted.  model a r e  t o d e f i n e v a r i a b l e s t o be  model.  this  second  study  this  Economic The  one  The  empirical  choice  implications  The  s e c t i o n of  measurement  forms  3.1  first  FUNCTIONAL FORM  function  fixed  inputs  v a r i a b l e s . For i n p u t s are  choose  a  a  fixed) feasible  31  production model  plan  which  is therefore  maximizes  defined  profits.  The  conceptual  as  7r =  fi(P,C;Z)  (3.1)  where  Profit current from  revenue  sales  costs  of  inputs  fees,  Feeding  of of  some  of  output  C  =  vector  of  variable  Z  =  vector  of  fixed  current and  the  total  on  are  Receipts  and  other  variable  inputs.  Other  concentrates,  custom for  between  costs.  feeds,  necessary  prices  inputs.  required  and  mixed  input  difference  chemicals,  is  prices  variable  labor  grain,  work,  the  etc.  growth  and  livestock.  taxes  these  truly on  yet  farm  will  be  chemicals,  feed,  custom  are  operating property  variables  an  often  prices.  These  and  this  Because  to  hired model  of  the  as  be  "variable",  variables.  shown  operating  retained. work  treated decision  considered  Theoretically, input  inputs  i t i s not  variables  variable  as  livestock  fertilizer,  are  those  vector  livestock  expenditures, Only  =  hay,  Although  example,  P  expenditures  breeding  only  profit  defined  less  include  fertility  =  is  crops  include  7r  under  decision  labor  annual  variable.  operating  include  For  decision  fertilizer,  expenses.  includes  output  and  perfect  competition  32  assumption  farmers  in  the sample are assumed to face  same p r i c e for a given commodity period.  Our  and  a  price  vector  across  of  prices  for  farms.  different  output  to o b t a i n s i n c e products  periods  and  prices  sufficient  production  The  model  producers  commodities  prices are  always  sold  is  are  generally  at  different  vary by q u a l i t y . An attempt to generate  was  discontinued  because  of  lack  of  information on the p h y s i c a l amount s o l d in many  s i t u a t i o n s . The inputs  variability  Unfortunately,  difficult  output  single  assumes that farm firms are multiproduct  required.  time  a  sample, being c r o s s s e c t i o n a l , does not  o f f e r output further  in  the  and  same d i f f i c u l t y arose  for p r i c e s  of  other  hence the only p r i c e v a r i a b l e i s that of h i r e d  agricultural  l a b o r . A wage  rate  for  both  unskilled  and  s k i l l e d labor i s used. Capital buildings,  a  machinery,  availability the  as  as an  equipment  input o f t e n i n c l u d e s land, and  often becomes a l i m i t i n g  operation and may  farm and  fixed  Land  f a c t o r to the s i z e of  determine the s i z e of l i v e s t o c k on a  the amount of crops produced.  input, a l s o has  livestock.  Livestock  capital,  the a b i l i t y to produce o f f s p r i n g that  increase the s i z e of l i v e s t o c k inventory f o r d a i r y and producers.  Data on land i s in the form of deeded or  land and acres c u l t i v a t e d . Both deeded and  beef  rented  rented glands  are  measured in d o l l a r terms s i n c e t h i s measure  is  to  the a b i l i t y to  be  capture  better other  than a c r e s . T h i s measure has soil  characteristics,  such  as  considered  fertility,  33  through  its  equipment and  market  values.  the  o p e r a t i o n and Often  inputs c o n s i d e r e d  experience  the age  of  the  may  been  or  include  decision  as  on  the  start  as  through  poor  their  makers.  A  r o l e of education on p r o d u c t i v i t y  has  in the previous c h a p t e r s . On-farm  operators  managers work  in farm  the  farm. Experience  d e c i s i o n s that farm  of  children.  substitute  work represents the time an operator puts work  years  for  discussed  act  and  units.  of the operator, spouse and  complement  operator's r o l e . The already  building  farm operator  farm operators are not the only  spouse  ,  l i v e s t o c k c a p i t a l are in d o l l a r  Other f i x e d education,  Machinery  may  into  the  daily  gained  i s assumed to a f f e c t  make.  Farm  often  improve t h e i r  experience.  operators  Collinear'ity  who  skills  between  an  operator's c h a r a c t e r i s t i c s ( e d u c a t i o n , age and on-farm work) and  those of the spouse i s expected  operator there  i s considered  is  the  variable. be  financial  v a r i a b l e i s probably  i n c l u d e d i n the e s t i m a t i n g  capture  the  ability  of  the  model.  d e c i s i o n s , to  control  debt  to make p r o f i t and proper  t h i s v a r i a b l e c o n s i s t of t e s t flow and  the  skills  the most important It  is to  operations,  expected make to  a  to to  good  control  tax d e c i s i o n s . Data on  scores on q u e s t i o n s  of  cash  tax planning management. In  will  management  operator  investment and  t h e r e f o r e only  in the e m p i r i c a l model. In a d d i t i o n ,  operator's  This  and  summary,  the e m p i r i c a l model to be  presented  r e t a i n the f o l l o w i n g v a r i a b l e s : h i r e d labor wage r a t e ,  34  capital,  operator's  management  3.2  Data  1980  sets  3.1).  A  financial  pertaining  for  are 31  collected  farmers In  the  one  1981  financial  a  management  of  used  are  as  in  i s intended far  as  of was  business  and  its  a  skill  tax  test  management information  on  financial  A p p e n d i c e s C and  format  also of  is  an  54  sets  questions  t o be  D.  The  improvement  and  on  basic  production  the  to  take-home  year  two  another  skill  presented  questionnaire 1980  and  pertaining  sample  their  the  present  workshops  f i n a n c i a l management and  Copies  questionnaire  new  provide  to  and  the  through a  production  pertaining  to t h e i r  in  attending  1982,  characteristics  used  observations  Farmers p a r t i c i p a t i n g  abilities.  of  was  to  management.  information, operating  data  year  given  observations collected.  of  sample of  production  questionnaire  that  and  Sources  study(Table  1981  labor  skills.  Two  the  education,  upon  presentation  are  concerned. It cover  a l l the  courses  during  because  production  who  attendants  offered  excluded  skills  i s worth n o t i n g  data  tests  attended  of  at a  a given the  were j u s t  these  observations  particular year.  and  farmers.  course  not all  Some o b s e r v a t i o n s  were  in  matching  financial  Also excluded  beginning  do  nor  difficulties  questionnaire  for certain but  that  to  f a r m and  the  management were those  those who  35  did  not c o m p l e t e a q u e s t i o n n a i r e These  different  types  vegetable, and  workshops  were  of  producers:  beef,  Cecil  farm  grain,  egg p r o d u c e r s .  Pemberton,  satisfactorily. attended  several mushroom,  nursing,  i n Vernon,  V a n d e r h o o f , Kelowna  3.1).  a r e expanded  Saanich,  items  and  Okanagan(Table  when i n t h e s e c t i o n s t h a t  follow. T a b l e 3.1 : L o c a t i o n , Commodity Type and Number of F a r m e r s A t t e n d i n g F i n a n c i a l Management Workshops  1980:  1981:  cattle  L a k e , Montney, C l o v e r d a l e , Summerland, P i t  Meadows, A b b o t s f o r d , These  bee,  dairy, orchards,  Workshops were h e l d  by  Region  Main Commodity  Vernon  bee  Saan i c h  mushroom and  Pemberton  beef  Cecil  beef  Lake  Number of Farmers 8 vegetable  7 5  and g r a i n  7  Montney Cloverdale  grain ' dairy  6 5  Cloverdale  bee  5  Summerland  orchards  5  Cloverdale  nursing  5  Pit  dai ry  7  Abbotsford  da i r y  6  Vanderhoof  cattle  4  Kelowna  orchards  4  Okanagan  cattle  3  Abbotsford  egg  6  Meadows  36  Data on l a n d use (both deeded and buildings,  machinery  e x p e n d i t u r e s on inputs,  hired  agricultural  labor  and  non-labor  h i r e d a g r i c u l t u r a l wage r a t e ( f o r both s k i l l e d and schooling  (operator,  spouse  c h i l d r e n ) and g r o s s r e c e i p t s were c o l l e c t e d . F i n a n c i a l  management s k i l l s were e v a l u a t e d  through a t e s t given p r i o r  to and a f t e r the workshops. The t e s t i s d i v i d e d sections:  section  one  has  6  questions  management s k i l l s and s e c t i o n two has 7 and  farm  and equipment and l i v e s t o c k c a p i t a l ,  u n s k i l l e d ) , f a m i l y l a b o r and and  rented),  estate  discussed standard  planning in  the  section  deviation  measurement  management that  on  into cash  questions  skills. follows.  two flow  on t a x  These  data a r e  The  mean  and  of these v a r i a b l e s a r e noted and t h e i r  discussed.  3.2.1 V a r i a b l e Input C o s t s V a r i a b l e i n p u t s a r e c r u c i a l t o the o p e r a t i o n farm s i n c e  these  expand  contract  or  allow  to  hired  to  custom  or  fees,  either  V a r i a b l e i n p u t s measured agricultural  labor  on non-labor i n p u t s . Non-labor i n p u t s  feed p u r c h a s e s , b r e e d i n g bedding,  operator-manager  production.  i n c l u d e cash wage p a i d expenditures  the  of a  veterinary  and  c o n t r a c t work, commercial  and  include  medicine, fertilizer,  a g r i c u l t u r a l c h e m i c a l s such as i n s e c t i c i d e s , h e r b i c i d e s and f u n g i c i d e s , d i s i n f e c t a n t s and p e s t i c i d e s and c r o p such  as  expenses  seed, b a l e r and t w i n e . The average e x p e n d i t u r e on  37  hired  labor  expenses  i s about amounts  $6700 to  per  $35600  year, per  that  year  on  non-labor  f o r the  pooled  data(Table 3.2).  T a b l e 3.2 : H i r e d L a b o r Wage R a t e s , H i r e d L a b o r E x p e n d i t u r e s , N o n - l a b o r E x p e n d i t u r e s and O p e r a t o r ' s E d u c a t i o n , L a b o r and F i n a n c i a l Management S k i l l s Var i a b l e E d u c a t i on (yrs.) Op. L a b o r (OOO's h r s / y r ) Wage r a t e ($/day.) Lab. Expend. (OOO's $ / y r ) Non-L. E x p . (OOO's $ / y r . ) Cash Flow Tax  3.2.2  a  2.6  11.6  1 .0  38.0  6. 1  Pooled Mean S. D.  D.  3 .0  1 .7  7.0  1 .7  0.9  9 .0  42. 4  8.9  8.8  .5 .1 2  6.7  11.0  13.0  17.5  48. 1  67 .7  5.0  2.4  4.6  1 .5  4.8  1 -9  4.9  1 .9  5.2  1 .8  5. 1  1 .8  3.3  9.9  2 .6  10.0  10.0  35.6  57.6  2.9  d a t a a r e i n 1981 d o l l a r v a l u e Management t e s t s c o r e s b e f o r e t h e C o u r s e  was n o t e d  price  to hired  earlier  the  only  input  enough v a r i a t i o n Columbia  variable.  is  in  wages  to This  $38 p e r day f o r t h e  assumed  allow lack  in this  between  study  1981  different  price  data  $36 p e r sample  that there i s farmers  fora satisfactory of  for  f o r t h e wage r a t e  l a b o r . The a v e r a g e wage r a t e i s a b o u t  3.2). I t  British  that  c o u l d be d e r i v e d was t h a t  f o r t h e 1980 sample,  (Table  this  0.7  1981 S.  P r i c e s and C o s t s  which  day  11.6  1 .7  3.0  Scores  It  paid  11.6  36.0  Sc.**  * The p o o l e d ** F i n a n c i a l  Mean  1 .6  Plan Sc.  Total  1980* Mean S. D.  in  measure o f  will  cause  38  misspecification •work i s t o be  3.2.3  problems which  carried  Family  of  supplied the  hired  labor.  i s dependent and may  wage r a t e  i s greater In  i f this  the  of  farm  labor  labor  required  opportunities. when the  agricultural  however,  i s another  family  work  opportunities  general  component  job  labor  on-farm  amount of  off-farm  than  family  amount of  the  seek o f f - f a r m  versa.  labor,  The  upon  upon  operators  important  addressed  further.  from  on-farm  farm  vice  be  Labor  Aside source  should  wage  on Farm  off-farm rate  family  labor  is  for  operation  and an and  management. Two this  study.  week, and  the  between  family  year.  work  labor  may  a be  d a y s and  the  not  satisfactory  adopted(Table  very  labor  i s measured as  per  farmers  operator's  300  labor  worked  that  measure was  3.2.4  of d a t a ' on  Family  weeks  assumption year,  sets  d a y s of  are  a v a i l a b l e in  h o u r s worked  Alternatively maximum of  defined off-farm and  the  as  300  the  on  the  days  per  difference  work. T h i s first  per  latter  measure  was  3.2).  Education In  important: education  measuring (1)  education  whose e d u c a t i o n  measure  itself  and  three i s being (3)  how  components measured, the  are  (2)  the  measure  is  39  expressed.  I t i s p o s s i b l e t o measure the  for  the  production  the  operator  alone  members, or an workers.  although  aggregate  the  of e d u c a t i o n  achieved  at  training.  represent  an  i s d e f i n e d as  indicated  f o r the  Management  perceive  conditions  and  make  reasoning  process  abilities  test  measurement  of  these  T e s t s may essay  type,  multiple may and  measure  and  skills  communicate.  allowing time  choice)  wider  true-false  and  serve  the  sum  is  Table  considered,  importance. of  plus  the  highest  years 3.2  The  of  11  post years  data.  as an  as  an  t y p e . An  objective  ability test  test  multiple choice.  with An  instrument  In  for  for  true-false essay  type  has  the it  study  and test  relate  advantage takes  i s a combination this  example,  to organize,  of m a t e r i a l b e c a u s e  matching  This  decisions.  forms,  the matching  An  to  skills.  answer,  a l s o the  ability  decisions.  better  many d i f f e r e n t  but  t o a n s w e r . The  of  (short-  sampling  operator's  t h a t , when combined  in  management  objective  family  the  are  proper  skills  may  take  all  of  of a l l farm  considered  results  score  level  Abilities be  information,  level  level  alone  in  pooled  may  generates  for  in  school  Management  other  is  education  secondary  average  education  education  components  As  the  aggregate  interest  other  Financial  the  operator's  secondary  3.2.5  measuring  of  our  these  quantity  by  or measure an  Since  performance,  grade  unit  educational  of  of  less both  measurement  40  of  the  financial  management  through  an o b j e c t i v e  choice  types  of  test  variable  combining  questions.  was  carried  true-false  The  weights  out  and m u l t i p l e  of  individual  q u e s t i o n s a r e d i s c u s s e d below.  3.2.5a Cash Flow Management Cash effective things, debt  It  statistics  financial  on d e b t  question  which  machinery  is  budgeting  f l o w of c a s h  for this  f o r making  among  other  i n the business, of  variable  management  worth  1.5  techniques  i s worth  4  points.  investment are reported  (1  i s worth  on  relate  preparation  through  loan  i s worth 2 p o i n t s .  obtained  was  about  The  The  first second  investment i n question  on  even c o s t p e r  1.5 p o i n t s ,  t h e f o u r t h on  fifth  on  income  to tax purposes  was  total  to taking  taken.  and  (1 p o i n t )  required  The a v e r a g e  4.8 p o i n t s p r i o r the course  third  of budgets  operating  5.2 p o i n t s a f t e r  skills.  there  the break  point),the  as t h e y  variables,  points.  The  to determine  product  statements  last  f l o w management  servicing  statements  the  skill  i s on c o s t s i n c u r r e d  of s a l e a b l e  financial  and  entails,  and t h e a s s e s s m e n t  s i x q u e s t i o n s on c a s h  expense  i s important  3.3.  question  and  of d a i l y  budgeting  The sample  For  unit  a concept  decisions.  the c o n t r o l  Table  are  as  financial  servicing,  costs. in  flow  Skills  f o r an score  the course  41  T a b l e 3.3 : S i n g l e Q u e s t i o n s o f F i n a n c i a l Management - Cash Flow and Tax P l a n n i n g : P r i o r t o and A f t e r the C o u r s e - P o o l e d Sample CASH FLOW TEST SCORES Before After Mean S.D. Mean S.D.  Var i a b l e Quest ion  1  1 .0  1. 3  1 .0  1 .3  Quest ion 2  0.6  0.3  0.8  0.4  Quest ion 3  0.9  0.5  0.8  0.5  Quest ion 4  0.5  0.1  0.7  0.5  Quest ion 5  0.6 .  0.5  0.9  0.3  Quest ion 6  1 .0  0.5  1. 1  0.6  Total  4.8  1 .9  5.2  2.3  TAX Quest ion  PLANNING TEST  1  0.6  0.5  0.7  0.5  Quest ion 2  0.6  0.5  0.8  0.4  Quest ion 3  0.6  0.4  0.8  0.4  Quest ion 4  0.5  0.5  0.8  0.4  Question  5  1 .6  0.9  2.3  0.9  Quest ion 6  0.5  0.5  0.7  0.6  Quest ion 7  0.7  0.5  1 .0  0.5  Total  5. 1  1 .8  6.9  2.9  3.2.5b Tax P l a n n i n g Management Tax organization existing knowledge  SCORES  tax of  planning in  order  laws. tax  It rates  is to  Skills concerned  receive  involves,  with  maximum among  business  benefit  other  from  things,  and s t r a t e g i e s f o r m i n i m i z i n g t a x  42  incidence question Question  taxable  income.  one  relates  to  two  Question  on  four  from  points)  depreciation on  the  on  skills  marginal  tax  r a t e s (1  point).  i s on  a will is  assets that  who  capital  six  gains  possible  average  total  before  which  i s not  1  point.  cost allowance be  rolled  engaged  (1  over  farming  the d i f f e r e n c e s  between  that  year  point.  in  i s worth  amount each  s c o r e was  on  1  worth  can  is actively  cost allowance  1  point.  can  be  weights  1  the c o u r s e  5.1  Question  taken  out  point. and  6.9  of The  after  course.  3.2.6  Total  Receipts  Farm receipts from  carries  of  Columbia  capital  the  gains  recaptured c a p i t a l  question  and  planning  validity  farmer  and  tax  in B r i t i s h  five a  For  capital  the  is  Question  to a c h i l d  seven  taxable  witnessed  Question  (3  on  three  properly  point).  on  receipts  i n c l u d e income  may from  o f f - f a r m employment  This  study  only  agricultural include  be sale  and  and  cash  cash  government  crops,  vegetable,  g r e e n h o u s e and payments  such  Assurance  and  other  and  nursery, cut as other  Crop small  k i n d . Cash  support  receipts  products,  programmes.  from  subsidies.  wheat, b a r l e y , o a t s , o i l s e e d s ,  Payments r e c e i v e d , hay,  or  of a g r i c u l t u r a l  government  includes  products  in  Canadian  sale  of  Crop  sales  Wheat  Board  fodder  crops,  potatoes,seed  vegetable  seeds,  tree  flowers  Insurance items.  and  fruits,  Government  Payments, Livestock  Farm and  crop Income  poultry  43  sales  include  including cream,  proceeds  wool, b r o i l e r s  other  livestock  Insurance.  Average  f o r the  3.2.7  and  3.4  on  a  building,  investment  such  such  as  as  lambs  amount  and  honey  Farm  and  Income  t o $100800  per  3.4).  farm  i s an  aggregate  machinery,  i s measured  : Total  in d o l l a r  1980* Mean S.D.  and  of  Sales  56.8  61 .6  Profit  40.7  47 . 2  125.2  the  Capital(000's S.D. 1 44.6  68.2  84.4  farm  Machinery  1981 Mean  and  i n t e r m s of c u r r e n t  values.  Revenue, P r o f i t  of i t s  equipment,  b u i l d i n g s ( e x c l u d i n g the v a l u e  h o u s e ) a r e a l s o measured Table  (Table  s h e e p and  p o u l t r y , eggs, milk  receipts  investment  Land  market v a l u e  payments  data  in land,  livestock.  other  hogs,  Stock  Total investment  dairy,  products  total  pooled  Capital  and  agricultural  government  year  from  Mean  $)  Pooled S.D.  1 00. 8  125.6  60. 2  75.2  Land:  inv. flow  446.7 8.4  457.7 8.6  497.5 9.3  871 .0 16.4  Bldg:  inv. flow  25.4 2.4  29.4 2.7  1 04. 3 10.3  113.1 11.2  77. 3 7. 6  99.4 9.8  Mach:  inv. flow  85. 1 15.2  T44.0 20.4  64.8 11.6  54. 1 9.7  75. 8 13. 5  88. 3 15.8  Lvst:  inv. f low  14.5 1 .3  26.4 2.4  65.9 6.2  82.7 7.8  48. 3 4. 5  72.4 6.8  Total:  inv. f low  57. 1 27.4  57.8 30.3  73.3 37 .0  981 .0 34.5  *  The p o o l e d  data  are in  1981  d o l l a r value  499. 3 9. 4  700. 8 35. 2  759.4 14.3  874.0 34.6  44  includes and  the  current  seeding  value  machinery,  specialized  equipment  extracting  equipment,  m e a s u r e s the breeding per  year  f o r the  3.2.7a C a p i t a l One assume  of  capital this  into  that  and  of  the view  capital the  good  capital  stock  values  who  analyzed  and  other  equipment,  honey  Livestock  capital  females  investment (Table  in  the  i s $700800  3.4).  which  is  period  does  i s the  of  constitute  the  time,  a  direct,  rental  rate  of  the  opportunity  flows.  return  takes are  the  interest  approach  which  There  i n each p e r i o d  amount the  alternative  capital.  is  appropriate  of  used over  rental rate  of  the  cost  cost  life of  of the  incurred  by  good d e p r e c i a t e s  in  a l t e r n a t i v e l y appreciates  rates  to  since  provide  utilization  i s the  into service  to  However,  and  not  is  proportional  above argument, an  owner  There  services  service.  the  of  labor  s e r v i c e s are  i n one  of  and  respectively.  capital  its  good.  most  labor  which  to  or  capital  services  funds. There  the  observations  of  tying  Thus  number of  flow  good,  each p e r i o d ,  the  of  bought  capital up  forth.  capital,  rate  components  capital  so  and  measure of  account  three  and  average c a p i t a l  capital  In measure of  milking  pooled  goods a r e  measurement  as  tillage  Services  labor  stock  machinery  such  measure of  that  stocks  The  motorized machinery,  harvesting  d o l l a r value  herd.  of  in  i s to  Following  from c a p i t a l  each  period.  translate Jenkins  these (1972)  i n Canada, a  real  45  interest  rate  income t a x  of  6 percent  allowances  depreciation  capital  machinery  stock of  value;  the  i t s stock  value  and  that  of  Any  rate  (Farmer's  rates,  was  service  value;  used. Given  i n Canada  1980-81) on or  was  of  from land  service  buildings  at  18  9  Guide,  flow  from  percent  l i v e s t o c k at at  prevailing  Income Tax  c a l c u l a t e d at  flow  that  the  the  2 percent percent  of  9 of  of  its  percent its  stock  its  stock  value.  real  interest  the  real  and  the  rate  depreciation formula  and used  $ =  where  4 percent  6  is  capital  stock.  depreciation  of  the  flow,  ].[  p i s the  depreciation  assumption  that  the  form of  Cobb-Douglas  K  a  to  4  percent  a zero  rates  rate  of  were assumed.  was  (3.2)  of  Griliches profit we  of  difference  and  land,  rate  ]  rate  function,  added  were assumed.  appreciation  underlying  the  were assumed.  rates  appreciation  from  a zero  as  appreciation  assumed. F o r  following  was  rate  derived  depreciation  [ r-p+5/l+r  Finally,  the  rate  in these c a l c u l a t i o n s  $ is service  asset,  were  subtracted  machinery,  rate  b u i l d i n g s , a zero rate  For  percent  and  was  depreciation  rate.  appreciation  depreciation  The  13  appreciation  l i v e s t o c k , a 4 percent  between For  r a t e and  interest  appreciation For  of  the  rate  asset  (1957), function  have c h o s e n ,  of  the  and  K  on  the  i s of in  is  the  order  46  to  minimize  bias,  aggregating each  the  capital  aggregated  3.2.8  geometric  capital  component  capital  Data C o l l e c t i o n  and  the  manner  information  in  questionnaire schooling was  or  inputed. problem, the  i n which 1981  family  in  1980  grade  school."  (2)  technology  respondents  failure)  in  This  situation  can  With questionnaire questionnaire worked  per  at  :  a  the  with  this  on  out  of  was  an  54  1981 of  repeated  cause  This and to  be  into  the  , as  phrased  in  parts:  (1)  or  this  at  institute question  school  highest  "The  secondary  schooling." This  years  a d d i t i o n t o the  had  insight  elementary  in  neither  reported.  information  two  data  education  schooling of  missing  production  better  was allows  (due  grade  of  to  achieved.  noise. to  family  i s more d e t a i l e d t h a n  year  1980)  missing  "Years  regard  asks  at  More  u n i v e r s i t y , c o l l e g e or But,  include  year  arrive  children's  consisted  achieved  read  to  the  question  " Y e a r s of  to  to  information  reader  attended."  rephrased  of  logarithms  collected.  cases  of  the  the  22  labor  questionnaires,  highest  In  true  give  i t was  (vis a vis  l a b o r . Some of To  summed  Thus,  however, p r o b l e m s a s s o c i a t e d  noted.  particularly  operator's  were  in  Problems  the  was  components.  (e.g.products)  s e r v i c e flow v a r i a b l e .  There are, data  sums  for hours for both  labor, that  worked  r e g u l a r and  per  of  the  1980.  week  1981  The  and  1981 weeks  summer s c h e d u l e s .  In  47  addition farm did  there  i s a question  week d a y s . S i n c e more d e t a i l not  could that  always provide simply  people  long the  to t h i s ,  be  that  cannot  sample  for this Another  they  d i d not  management at  category  for  1981  the  Income  may  be  in  higher  least  the  as  fill  out  a  given  the  seven c a s e s  is  the  take  the the  they  were  that  fall  in  This also resulted  t h a t c o u l d be  present  in p a r t i c u l a r  a  support in  Program, may  i n p a r t by  prices.  be  programs  B.C. that  some d e f i n i t i o n  problem  in  some farm of  farm  This  situation  may  Another  aspect  forms a r e not  producer  technologies  for this  the  f a r as  concerned  homogenous w i t h  and and  as  a  grain  costs.  yet,  our  There result  results.  that  their  and  choice  only.  aggregation  , i s the respect  producer  Farm  p r i c e s are  a l s o b i a s our  research  both  in Canadian  through  used  are  this  i n some  some i n c e n t i v e t o o v e r s t a t e c o s t s w h i c h may  functional  from  if  a n s w e r s w o u l d be  A bee  or  data  t h e q u e s t i o n n a i r e were a s s u r e d  samples  time  were e x c l u d e d  Those c o m p l e t i n g  of  reasons  of  workshops and  tests,  data.  aspect  Assurance  determined  the  excluded.  Another  or  attend  skill  There are  agriculture,  of  required to  observations  children  operator.  being  respondents  keep r e c o r d s  problem a s s o c i a t e d with  financial  sets,  time  of o f f -  reason.  of h a v i n g  data  the  number  required  i n f o r m a t i o n . One  Some  likelihood  respondents  was  the  this  afford  questionnaire.  on  fact  that  t o commodity  will  use  our type.  different  e m p i r i c a l model, as a p p l i e d i n  48  this  study,  face  the  i s developed  same t e c h n o l o g y .  made t o d i s t i n g u i s h using  a  dummy  livestock pooling from  of  Johnson the for  34  Douglas  while  were  relation  to each  the  obtained.  (1980),  sensitivity  of  (1952)  in  functions.  Huffman o b t a i n e d  extension  programs  ranging  value  arise  i s evidenced  or by  livestock with  found  8  were  a study  of  farmers  marginal between  in  of  Cobb-  farms  gave were  unreliable  in  farms  results  276  7  estimates  that  recently  products  a  Johnson(1969).  multiple-enterprise  Oklahoma, has  marginal  of  enterprise  sample more r e a s o n a b l e  and  that  labor c o e f f i c i e n t s  coefficients after  and  w i t h a g e n e r a l knowledge  l a n d and  were d i s c a r d e d from  Carolina  and  were  producers  as  to m u l t i p l e - e n t e r p r i s e  o t h e r and  Huffman  well  inconsistent  farms and  other  as  farms by  popcorn,  His  sample  into vegetable  investments  i n the a r e a . T r a n t  negative  livestock  r e g a r d l e s s of  multiple enterprise  results.  our  C o m p l i c a t i o n s which may  income  functions fitted  Iowa, N o r t h  and  tried  i n p u t s and  livestock  unreasonable  8  gross  in  e s t i m a t i o n , attempts  grouping  sample.  sample. C o e f f i c i e n t s other  A  also  i n c l u d e d tobacco,  agriculture  7  was  whole  aggregating  study  During  between d a i r y  producers the  i f a l l farmers  variable.  aggregating  from  as  were  counties in noted  the  of m u l t i p r o d u c t  value  $2000 and  products  for  $8000 p e r  day  E a r l y 0. Heady, G l e n n L. Johnson, and Lowel S. Hardin (ed.), R e s o u r c e P r o d u c t i v i t y , R e t u r n s t o S c a l e , and Farm S i z e (The Iowa S t a t e C o l l e g e Press Ames,Iowa, U.S.A., 1969), pp. 106-113 Ibid.  49  of  extention  activities.  Sample s e l e c t i v i t y advertisement w i t h an  of  interest  course.  Both  the  limit on  on  samples  a limit  course. Courses  twelve  below  our  sample  assumption  the  stable  per  the  group. for  were c a n c e l l e d .  differences  i n the  two  sets.  these  two  a  This  course  is plausible  small  classes  different  parameters  i s to p o o l the data  be  for  this  but  periods are  i s to p o o l the data  alternative  With  from  handling  data  possibility  of  register  farmers  size.  pooling  c o n s i d e r e d . One  of  Through  participants  five  t h e number of p a r t i c i p a n t s  In  should  skills  collected  of  problem.  management c o u r s e  their  were  g r o u n d s of e f f i c i e n c y  limits  another  financial  in updating  However, t h e r e , was particular  is  but  These  shortcomings  under  between  to  test  results in  years.  for  are  An  possible  noted  mind,  the  the  later. results  interpreted accordingly.  3 . 3 F u n c t i o n a l Forms In s e a r c h i n g f o r a f u n c t i o n a l principle  is  underlying  technology.  technology, could  be  and  and  X , 2  Assume and  to  every  factor  profit  Consider  assume  maximizing  technology. X,  that  that  profits the X  2  farm  form, function  the case  of a  the p r o d u c e r s subject  the  to  t h e r e i s an Cobb-Douglas  i n our  a  i s operating with  i s c o n s t r a i n e d i n the  guiding  sample  Cobb-Douglas two  inputs,  s h o r t run a t  50  level  K. The r e s t r i c t e d p r o f i t  solving  the f o l l o w i n g  max  equation  the  first  Cobb-Douglas  px\rf*- w,X,  (3.3)  constraint  a-ll-a  i n t o the p r o f i t  to:  - wK  (3.4)  2  i n our  conditions,  paX,K - w,  This  by  t o X^K""^ Q  the producers  order  found  problem:  t h e p r o b l e m becomes e q u i v a l e n t  that  be  2  the  max  Assuming  can  p.Q - (w,X, + w K)  subject  Substituting  function  sample  are  satisfying  then  = 0  r e s u l t c a n be s o l v e d  (3.5)  i n terms o f demand  f o r f a c t o r X.  as  l/a-1 X, = [ w , / a . p ]  When t h e demand profit  function  equation,  a  K  is  Cobb-  (3.6)  substituted Douglas  back  profit  into  the  function  is  def i n e d . Using technology  being  t h e same t e c h n i q u e , used  by t h e  depending  producers,  on t h e a c t u a l  functional  forms  51  for  profit  functions  technologies constant  are  Leontief  are  considered  3.3.1  form  = aX,  marginal  allow  for  inputs.  function  i s not  Constant In  in  the  case  +  bX  the  function  merits  and  and  demerits  of  two  inputs  may  be  (3.7)  2  following  drawbacks a s s o c i a t e d  products are diminishing  On  this  constant  and  returns.  of  these  any  this  therefore i t  Being  form p r e c l u d e s  account  with  a  fixed-  interaction  drawbacks,  this  considered.  Elasticity the  case  of of  Substitution two  variables this  function  has  form,  Q  The  function. Their  function,  between  the  function,  s u b s t i t u t i o n production  some t h e o r e t i c a l  coefficient  3.3.2  production  possible  as  Its  does not  Other  Form  Q  There are  of  derived.  below.  This represented  be  linear  production  Linear  form."  the  elasticity  the  may  = g[ax,  main drawback of  +  this  (1-a)x ]  (3.8)  2  form  is  in  the  difficulty  in  52  including the  more t h a n  function  does  logarithmically estimating  one  not  and  i t . On  independent  an  variable.  linearize  In  when  approximation  addition,  transformed  must  be  account  of t h e s e d i f f i c u l t i e s  form,  although  used  when  i t was  not  considered.  3.3.3  Cobb-Douglas This  researchers,  has  restrictions  placed  it  does n o t a l l o w  function. as a  The  that  on  for  1972).  function  collected other  have many  3.3.4  p l u s the  of  fact  It i s  well  farm  of  of  basis,  accepted  function  probably  multicollinearity  the  form  a  productivity  of t h i s also  that  t h e r e s e a r c h e r t o see how  terms  this  grounds  is generally  of t h e v i r t u e s  in  On  the  among  approximation  evaluating  allows  popular  is the the and  i s considered to  advantages.  Flexible The  theoretically output  only.  series  of  multiple  for  practical.  d a t a behave  problems.  order  however  One  that  on  the p a r a m e t e r s , second  form  i t i s s i m p l e and  best  criticized  function  functional  (Yotopoulos,  been  very  Functional  Forms  technologies discussed suited  to handle  Diewert  flexible output  however,  c a s e s of s i n g l e ,  (1973), functional  situations.  above,  in  turn,  forms  Flexible  has  that  are  homogeneous specified can  functional  a  handle forms  are  53  also  supposed  through order  the  to better  interaction  approximation  however,  is  handle  the j o i n t n e s s  terms s i n c e  i t allows  of a f u n c t i o n . An  that  they  require  of the  f o r second  obvious  much  data  inputs  difficulty, and may  pose  multicollinearity  problems because of the i n t e r a c t i o n terms  when t h e f u n c t i o n  i s estimated  The functional  theoretical  forms  stems  impose any a p r i o r i restrictions of  from  on h o m o t h e t i c i t y ,  for  flexible  the  fact  that  t h e y do n o t  in  our  model.  Hence  no  s e p a r a b i l i t y and e l a s t i c i t y  members o f t h e f l e x i b l e  family are  below :  3.3.4a G e n e r a l i z e d the  preference  restrictions  s u b s t i t u t i o n . Several  reviewed  directly.  Leontief  Profit.  These  functions  take  form o f :  7r(q) = Z Z B y Q i V ' Q j V- , B j j B j j .  (3.9)  2  M-fn where  Q= m  p r i c e of output  n f o r n = 1,2,  = p r i c e of input prices rich not  of s e v e r a l enough  suitable. It i s also  3.3.4b V a r i a b l e  Profit  functions  most  form o f  these  ... . M and q = W  N. T h i s  o u t p u t s and i n p u t s .  to s a t i s f y  the  m f o r m = 1,2,  Since  requirements  form  our data  popular  Among  i s not  the f u n c t i o n i s  not a v a r i a b l e p r o f i t  Function.  requires  function.  the v a r i a b l e  i s the t r a n s l o g .  profit  I t takes the  54  ln7r(p,x)  = A+  lnl> +  D  1/2Z  ZB^n^  InPn + Z I C i j l n P i l n X j + Z D j l n X j + 1/2Z Z G ^ l n X j l n X  where Bjh=Bhiand most  used  Another  G$c= Gkj. S i n c e t h i s  of f l e x i b l e possible  forms,  it  (3.10)  k  function  seems t o be  the  i s c o n s i d e r e d as c a n d i d a t e ,  candidate for  a variable  profit  function  i s  7r(p,v) = Z Z Z Z(Aih+Bjk) + l/2PnP )  VM-Vj)  h  -Vj)  d/2PiPi 1  / (-V )  ; Aih=Ahi; Bjk=Bkj;  +Z Z C i j P i (  2  k  AiL=0;  Bjj=0.  (3.11)  where p= (P , . . . , P j.) d e n o t e :  variable vector  outputs  and  of n o n p o s i t i v e In  considered Douglas.  our and  a vector  inputs, fixed  analysis  attempted  and v = ( V V j )  two  functional  the  seemed  derived  variable  profit  3.4 I m p l i c a t i o n s  in  Chapter  for  denote  a  Thus,  forms  were  and t h e Cobbfairly  the  2 was e s t i m a t e d a s a  well to  theoretical log-linear  function.  for Estimation  In o u r economic concerning  translog  t o respond  t h e d a t a and was t h e r e f o r e c h o s e n . model  prices  inputs  :  The Cobb- D o u g l a s  of p o s i t i v e  model  a  number  of  assumptions  p r o d u c e r ' s b e h a v i o u r were made. The p r o d u c e r  was  55  assumed  to  efficient In  so  may  occur  be  or  attempting  economic p o i n t  doing  however, b i a s  due  to  lack  multicollinearity problems are  3.4.1  optimum  estimation.  equilibrium variations  these  differentials. expectations input  Also,  Tables  to  a  certain  inputs,  lack  for  high  inputs.  resources will  These  regions. in  3.2  In  and  farmers w i l l 3.4 levels. the  production.  to  on  to  allow under price  study,  information  of  knowledge of  used  regions.  is  scarce  input  this  generates  input  be exist  15 d i f f e r e n t  and  are  it  variation  product  a p r o b l e m compounded by  influencing  parameters  assumption  input  because  these of  inputs.  sections.  sufficient  regions  i n some of  relate  variables  of  among f a r m e r s ,  levels.  variation  lack  most  levels,  of  input  concerns  example, workshops were h e l d  accross  input  economic  reason  between d i f f e r e n t  that  production  enough v a r i a t i o n s h o u l d  Another  the  variable  maximization  though each  conditions  expected  at  Levels  producers'  level,  to  i n t o the  following  profit  l i m i t e d . Thus even  its for  that  respect  simultaneity  i n the  the  operate  v a r i a t i o n in  and  noted  Despite  and  of  V a r i a t i o n i n Input  recognized  with  to  for It i s  prices  certain  price  different  price  tend show  to vary  considerable  Another marginal the  their  reason  may  product  of  l a r g e number  of  56  3.4.2  Multicollinearity Given  also  the  expected  of  nature  that  Inputs of  a production  some d e g r e e of  between c e r t a i n v a r i a b l e s . T h i s and  labor  influence also  variables the  could  Highly  amount of be  farm o p e r a t i o n  3.4.3  the  level.  b e c a u s e of  h i r e more  the  profit.  decision long  dynamic  supply  off-farm  have  job  exist  capital  capital  could  vice-versa.  There  and  labor.  l e s s labor  to  opportunities  problem. run  in  first  amount ^of  and  an  that  the  the and  a  c h o s e n as  part  decisions  of  problem  are  often  because  u s e d , and  a  a  grown. Random e v e n t s  s u c h as  short  run  multiperiod,  inputs  that  i s that  one-period  are For  a p r o d u c e r may  during  are  expectation  a g r i c u l t u r e however, b o t h decisions  assume  assumption  simultaneously(Antle,1983).  t o be  equation  a n t i c i p a t e d output input  are In  single  mathematical  s t a g e of p r o d u c t i o n ,  labor  planted  of  on  s u c h an  production  utilized  a  i m p l i c a t i o n of  optimization or  based  assumes  maximization  inputs  used  a Cobb-Douglas t e c h n o l o g y  d e c i s i o n s are  The  chosen the  that  Hock(1958,1962)  production  is  of  is  labor.  procedure with  input  b a s e d on  and  will  between  size  may  it  S p e c i f i c a t i o n Bias  estimation  of  occur  needed and  farm o p e r a t o r s  Studies  that  may  the  labor  collinearity  a r e l a t i o n s h i p between e d u c a t i o n  educated  consequently  since  process,  stage  not a l l example,  choose the  weather  the crop  change  57  occur  during  plant  g r o w t h . The f i r s t - s t a g e  mature,  unharvested  crop.  the  i s harvested  using  crop  may  a f f e c t harvest  disturbances words,  decision  early  stage production  these  complications,  that  other  may  stages'  assumed  the e r r o r s  variations, the  actual  output  the  technical efficiency  stages.  In  other  information  about  decisions. study  back  to later  of  of t h e s e  back  i n the e f f i c i e n c y  divergence  i s a function  present  feed  production  weather  input  the  d e c i s i o n makers do not  early  feed  Despite  i t i s assumed  information  input are  about  decisions. due  the expected  to  output  p r i c e , and due t o i m p e r f e c t parameter  stage  Adverse  at a l l  to later in  inputs.  output  decisions  makers  i s the  In t h e s e c o n d p r o d u c t i o n  and f i n a l  and i n p u t  output  It is  climatic  price  from  knowledge  of  of the farm.  3.4.4 L e f t Out V a r i a b l e s In variables  applied  interact  coefficients bias  will  positively  of be and  econometrics,  and  one  of  the included upward  if  vice  versa.  them  variable analysis is  A  proxy  the  two  Some  known  variable  to  cause  i s , f o r example,  difficult  economic d e c i s i o n s ,  better  is  independent  left  out,  the  be b i a s e d .  The  variables  interact  v a r i a b l e s are excluded  v a r i a b l e may be d i f f i c u l t  may  sometimes  possible  bias  t h e management  t o measure. S i n c e  two  variable will  b e c a u s e a c o r r e c t measure o f t h a t to o b t a i n .  if  better  suffice.  in  input  production because  managers make  managers o b t a i n  A  higher  it  better  marginal  58  returns to  from  maximize  interaction other if  i n p u t s and profit.  ability.  is left this  According  observed  latent  relatively  more  schooling,  and  score  have  a  psychologists.  financial without  coefficients variables  9  on  the  T h i s was  not  data.  uses  Since  education  inclusion of  test  education Other  repercussion  involve  the  s p o u s e ' s and  These  variables  were  on  people  of  income,  words,  effect  on  measure  the  the  farm  to  ability  by  and  i t is an  IQ  developed  by  study  for lack used  operator  of in and  independent v a r i a b l e s  an  upward  financial  left  given  earnings  ability  an get  people  other  s c o r e s as  and  is to  estimating equation  out  bias  labor  included  in  to  management  variables  estimated  children's not  "  motivates  in this  of a b i l i t y ,  i s expected.  some  the  variable is  schooling. Ideally  score  of  coefficients  out  more  t o measure  done  levels  ability  and  In  9  amount of  test  left  earn  positive  equation.  drives  positive  to attempt  management  the  that  in order  a  the  to other  (1977),  and  similar  and  thesis  to G r i l i c h e s  independent  and  important  various t e s t s . "  most a p p r o p r i a t e  facilities  an  them is  estimating  perhaps a l s o enables  an  or  levels  i n the  study  there  imparted  variable  i t s effect  test  out  more of  result  be  schooling  b e t t e r on  beyond  have  a  inputs. A bias w i l l  In  this  As  between management  management  may  t h e r e f o r e use  skills  that  parameters  the  may could  and  education.  the  estimating  Zvi G r i l i c h e s , " E s t i m a t i n g t h e R e t u r n s t o S c h o o l i n g : Some E c o n o m e t r i c P r o b l e m s , E c o m e t r i c a , V o l . 4 8 ( J a n . 1 9 7 7 ) , p.7  59  equation.  3.4.5  Non-response In  this  non-response inputation  Errors study,  face a s i t u a t i o n  i s a p r o b l e m . Some e d i t i n g of  the m i s s i n g  was d o n e , f o r  example,  production  data,  production  we a l s o  and  on  values  family  some  labor,  other  necessary.  education  for  receipts,  costs  information.  exercise  has p r o b l e m s and a s a c o n s e q u e n c e  biased  and  expect  This  bias  could  arise  through  This 1981 of  inputation  estimates  inconsistent(Johnston,1960).  some  which  f o r c o n s i s t e n c y and  has been  operator's  in  We,  may be  therefore,  inputing  missing  informat i o n .  3.5 Summary In Data of  sources, basic  empirical  chapter  data  collection  variables model  variables.  is  to  chapter and  deals  lack  to  a  Given  measurement  our  data the  of  selected  number  suitable. Possible  of v a r i a t i o n  simultaneity  non-response  with  i s presented.  f u n c t i o n a l forms were r e v i e w e d and t h e  multicollinearity, and  model  p r o b l e m s and t h e  discussed.  chosen as b e i n g  due  variables  are  t h e economic  restricted  Several  Cobb-Douglas problems  this  errors  the e m p i r i c a l  interpretation  focus  of  i n input  estimation levels,  inputs, are  model.  on t h e e f f e c t s  left  noted. The  high out  The n e x t  presentation  of education  and  60  financial  management  skills  on v a r i a b l e  profits.  61  CHAPTER IV ESTIMATING THE RETURNS TO EDUCATION AND  FINANCIAL  MANAGEMENT The British form are  u n d e r l y i n g theme of t h i s  Columbia  of  education.  test  program  prior  Unlike  financial  and  formal  education  subsequent  alone  education  simply  may  formal  the resources  of t h i s  a  information other  permit  a  a t hand  worker's  chapter  program  effect"  Increased  faster  adjustments  changes  disequilibria  in  or  given  this  to  each  Increased  The  is  returns  c o n d i t i o n s . The e f f e c t  Increased  accomplish  more  i s sometimes  acquire  may  and  also decode  characteristics is  of  known a s t h e  production  (Schultz,  expected  t o induce  also  other  to  i t s substitute  education  latter on  to  the b e n e f i t s of the  to  to  A  course, the  a r e measured.  i n the a l l o c a t i o n prices  management  situation.  (Welch,1970). T h i s  of e d u c a t i o n education  which  s p e c i f i c a t i o n s . In  and  worker  ability  (Welch.1980).  1975).  any  programs  estimate  a b o u t c o s t s and p r o d u c t i v e  inputs  "allocative  in  to  education  known as t h e "worker e f f e c t " . enhance  learnt  first  management t r a i n i n g  the  t o e s t i m a t i o n of r e t u r n s  under a l t e r n a t i v e  section  to  is  that  project i s a  the f i n a n c i a l  training  skills  attempts  relationship  with  after  management  chapter  extension  system,  Thus as a p r e l u d e  present  financial  other  i s d e l i v e r e d i n a classroom  to  participant.  is  management t r a i n i n g  o f t e n b a s e d on a v i s i t  training  a  financial  study  of  resources  changes which of e d u c a t i o n  due  to  generate increases  62  the  producer's  conditions.  speed  This  been  investigated  Fane  (1975);  to  adapt  ability  to  and found  to  changing  deal with  disequilibria  t o be e c o n o m i c a l l y  Khaldi  (1975);  Huffman  first  section  of t h i s  economic  (1977 )  important and  has by  Petz.el  ( 1 978) . The estimating profit  equations,  function.  estimating results equations is  the  second  adopted.  In  production  variable.  to  section the  function  incorporate  Results  of  the  the  the  expected  the  program  changes  i n the p r o f i t s  variable  discusses  the  section  the  third  and v a r i a b l e (profit  financial  financial  a r e d i s c u s s e d . In t h e l a s t  presents the  f u n c t i o n and a  a r e d i s c u s s e d . T h i s b a s i c model  extended  training  The  strategy  of  a production  chapter  function) management  management  section,  profit  p r i o r to  an e s t i m a t e o f  by f a r m e r s  who  attended  i s provided.  4. 1 The E s t i m a t i o n o f R e t u r n s Firstly,  to Education  a Cobb-Douglas t o t a l  revenue  function i s  estimated as:  l n Y = InA + a l n K  + |31nH + 7 l n N  + 0 l n L + 01nS + u  (4.1)  where  Y = gross  value  of a g r i c u l t u r a l  products  sold;  63  K = service  flow  flow c a p i t a l  ln(0.0l887*value building)  of  L  = farm  and  variable  i n '000  inputs  of  livestock) and  equipment);  $;  (fertilizer,  c u s t o m work; measured  operator's  to  + In(0.0943*value  of m a c h i n e r y  l a b o r measured  N = purchased feed  land)  i s equal  + I n ( 0 . 0 9 4 3 4 * v a l u e of  + In(0.1792*value H = hired  which  l a b o r measured  i n '000  chemical, $);  i n hours  per  year ; S = years  of  s c h o o l i n g of  measured as p r i m a r y ,  the  farm  secondary  operator and  university  educat i o n . Secondly, in  Chapter  2  is  the  theoretical  estimated  as  model  (2.13)  log-linear  specified  variable  profit  funct ion:  ln?r = InB  + alnW + j31nK + 7 l n L  + c6lnS + u  (4.2)  where  7r = v a r i a b l e  profit  agricultural purchased  products  variable  fertilizer, work l e s s  d e f i n e d as g r o s s  labor  expenditure  which  less  day  includes  f e e d , and on  hired  custom  labor;  to h i r e d  includes s k i l l e d  of  expenditures  i n p u t s which  chemicals,  W = wage r a t e p a i d p e r  sold  value  and  agricultural unskilled  on  64  labor; K = service  flow  from  ln(0.0l887*value building)  capital  per S  + ln(0.09434*value  of l i v e s t o c k )  of machinery  operator's labor  measured  priori,  one  would  operator's labor,  hired  e x p e n d i t u r e s t o be p o s i t i v e  and  profit.  expected  Hired labor  wage  t o have a n e g a t i v e The " e s t i m a t e d  elasticities percentage example,  change  in  education.  at  changes  productivity  the  the  on  signs  to  labor  and non-  total  revenue  b e i n g an i n p u t p r i c e , i s  sign.  differentiating  evaluated  rate,  operator.  hired  of these equations are  i n the p r o f i t  the independent  97T/3S = 0[  and  capital,  parameters  or percentage  the m a r g i n a l  by p a r t i a l l y  equipment);  i n hours  expect  education, labor  and  year;  = y e a r s of s c h o o l i n g o f t h e farm A  i s equal to  of l a n d ) + l n ( 0 . 0 9 4 3 * v a l u e o f  + ln(0.1792*value L = farm  which  variable.  one  Thus, f o r  of s c h o o l i n g i s o b t a i n e d  equation  (4.2) as  TT/S ]  geometric  for a  (4.3)  means  of  profits  and  65  4.1.1  Estimating Strategy As  derive  a  results  estimating f o r both  the  problems a r o s e d u r i n g the exercise.  A  parameter capital  components  and  livestock  In  an  and  attempt  variable in  1981  was  an  to  identify  dairy  information was  on  and  strategies  proved  alternative  the  that  only  to  homogeneous livestock  commodity  and  grain  satisfactory  results  attempt use  most  was  made  extraneous  Also,  an  by  attempt grouping  results  components and  samples  study  the  S i n c e most  gave p r o m i s i n g  pooling  for  samples  of  these  t h e y were d i s c o n t i n u e d . An  into  latter  consisted  p o o l i n g both  two  horticultural  p r o d u c e r s . The  as  the  somewhat  producers  approach  and  was  the  whole s a m p l e . Thus,  are  mainly  concerned  not the with  data. Pooling  obtain  in  variable  livestock.  types:  reported in t h i s  the p o o l e d  and  capital  both  buildings,  insignificant.  effects an  unsatisfactory  education  t h e s e p r o b l e m s a dummy  Similarly,  equipment and  grouping  the  obtained. Disaggregated  education parameter.  strategy  and  to  producers  the  a g g r e g a t i n g a l l the c a p i t a l  samples  as  producers  made t o a g g r e g a t e  machinery  of  group.  the  sign  some o f  capture  homogeneous commodity  sample d a t a . Many  were g e n e r a l l y  for livestock to  1981  were made t o  wrong s i g n s t o l a n d and  to circumvent  effort  efforts  s t a g e s of t h i s e s t i m a t i o n  s e t was  parameters  tried  and  wrong  data  had  1980  initial  persistently  f o r the  strategy  of  more r e l i a b l e  the  two  estimates.  samples In  is  pooling  an  attempt  data  to  however  66  common if  relationships  and o n l y  i f such  coefficients were no  the The  Chow t e s t  statistic  1 0  was across  c a n be  are stable;  coefficients  the r e l a t i o n s h i p  i s that  there  is  used  to  = [ (RRSS - URSS)/k +1  test  sets  from  i s , the  for  data  there i s of  the  i s stable.  difference  i s , the r e l a t i o n s h i p  was o b t a i n e d  that  i s that  that  both  established  i n which the  hypothesis  the  words,  hypothesis  data  the p e r i o d s  in  other  relationship;  coefficients  F  In  alternative  over  Thus t h e n u l l  difference  relationship. The  relationships  are stable  collected. marked  f o r the e n t i r e  in  i s unstable.  stability  of  the  of d a t a . The c a l c u l a t e d  the f o l l o w i n g  F  formula:  ] / [URSS/(N,+N -2k-2) 2  ]  (4.4)  where RRSS = t h e r e s t r i c t e d r e s i d u a l obtained  from  the pooled  of b o t h  The  1 0  N, = 1980 sample  size;  N  size.  = 1981 sample  calculated  See A p p e n d i x  F statistic  residual  sum o f  years;  k = number o f e s t i m a t e d  2  squares  data;  URSS = sum o f t h e u n r e s t r i c t e d squares  sum of  parameters;  was 0.82. From t h e F t a b l e  A for calculations  the 5  67  percent value  significance of  F  Therefore  the  s t a b l e can  4.1.2  is  not  null  not  p o i n t was  be  hypothesis  education,  profit  4.2  value  Table  estimated  4.1  are  marginal  and  table  4.4  data  were p o o l e d  deals with  those  1%  profit.  improvement  are has  In the  revenues.  In  improvement  in education  is  the  noted  initially.  and  estimated  Table  4.3  f o r the  profit  revenue  results  in  the  equation Since  the  estimates  results. labor  with  i n a 0.53%  the  priori on  both  ( T a b l e 4.1) increase  in 1%  increase  in  1981 d o l l a r v a l u e s . some v a r i a b l e s .  See  0.40%  4.2)  a  a  a  (Table  and a  effect  revenue e q u a t i o n  equation  Table  marginal  equation.  positive  are  deals with  operator's  results  and  (elasticities)  consistent a  capital  revenue  revenue e q u a t i o n  The 1980 d a t a were c o n v e r t e d i n t o A p p e n d i x C f o r sample s t a t i s t i c s of  1 1  1 1  and  t o o b t a i n more r e l i a b l e  in education the  the  are  the p r o f i t  for education,  variables  and  of  labor  f o l l o w s s t r e s s e s these  expectations. Education revenue  relationship  both  Next,  discussed.  in order  the d i s c u s s i o n t h a t  capital  level.  Equations  results  value products  with  Results  calculated  5 percent  the  coefficients  equation.  products  in  models, t h e i r  regression  with p r o f i t  that  operator's  variable  discussed.  at the  Profit  a r e common v a r i a b l e s  the  the  rejected.  variables  First,  Thus  significant  R e s u l t s of Revenue and Since  2.00.  68  profit. either and  These gross  their  elasticities of  this  tended  possible  to  be  other  independent  of  that  affects  to  much  effects  stronger  operator's amount of gross (Table  l a b o r used (Table  about c a p i t a l  capital results.  and  the  The  in  both  sample.  One  significance  sample  and  equations.  the  operator's  may  become i n v o l v e d i n o f f -  l a b o r on  affect  and  r e v e n u e and that  will  profit.  of  result  4.1)  and  capital  the  the  size  also  and  Their  effect  is  the case  of  sample a  i n c r e a s e i n the  in  a  1% 0.54%  a 0.77%  is a difficult  components may  strong  In  exhibits  aggregation  have  education.  an  partly  in  profits  extremely  low  that information  question  procedure  increase  increase in  t o 0.09). I t i s s u s p e c t e d  stocks the  weak  of  i t could also  labor  Capital  elasticity(0.05  answer  on than  4.2).  level  in  l a b o r f o r the p o o l e d  sales  education  one(inelastic).  pooled  of  stock.  Operator's positive  in  p r o b l e m between e d u c a t i o n  t h e amount of  and  the  weak  variables  work or a c t i v i t i e s  responsiveness  although  in  i n t h a t t h e more e d u c a t e d  one's c a p i t a l  than  variable, improve  the  improvement  less  a multicollinearity  Education  farm  is  e x p l a n a t i o n f o r the  could  farm  imply  r e v e n u e or p r o f i t  significance samples,  results  f o r farmers  adopted  for  have a b e a r i n g on  to the  these  T a b l e 4.1 : Revenue F u n c t i o n t o Measure t h e Marginal Productivity of E d u c a t i o n ( t - s t a t i s t i c s in parentheses) Independent Var i a b l e  U n i t of Measure  1 980 Data  1981 Data  Pooled Data  1 .23 . (0..94)  0,.44 (0..96)  0,.53 ( 1.20) ,  $/  0,.42 (1 .49) .  0..55 (2..83)  0,.54 (3,.57)  $/  Operator's Educat ion  yrs  Operator's Labor  hour  Aggregate Capital  flow  0..03 (0..92)  0..03 ( 1.54) .  0,.05 (2,.74)  H i r e d Labor Expendi ture  $  0.. 1 2 (2..25)  0,.08 (2..34)  0,.10 (3,.58)  Non- L a b o r Expenditure  $  0.. 1 4 (0..81 )  0,.33 (4..65)  0,.23 (4..61 )  -2..85 (-1 .,85)  -3.. 1 4 (-2..16)  0..81  0,.74  Intercept  -3..31  (-0..78) R  2  F Number of Observat ions  0.,47 5..51 26  40.,0  41 . ,4  47  73  70  T a b l e 4.2 : V a r i a b l e P r o f i t F u n c t i o n t o Measure t h e M a r g i n a l P r o d u c t i v i t y of E d u c a t i o n ( t - s t a t i s t i c s in parentheses) Independent Variable  1 980 Data  1 981 Data  Pooled Data  Operator's E d u c a t i on  1 .79 (1.21)  0.04 (0.06)  0. 40 (0.67)  Operator's Labor  0.59 (1 .87)  0.87 (3.24)  0.77 (4.03)  Aggregate Capital  0.09 (2.31)  0.09 (3.30)  0.09 (4.72)  H i r e d Labor Wage Rate  1.14 (0.83)  0.47 (0.52)  0.75 (1.05)  -5.87 (-0.78)  (-0.19)  Intercept R  0.25  2  F  In to  years  sample a v e r a g e s (Table  4.4)  averages  the  $4659.  In  aggregation necessary  the  parameter  21.0  47  73  ( T a b l e 4.3) t h e (education) variable  multicollinearity  may  used  order  ,in  this  variables. to  profit  inputs could allow  the  equation  f o r the pooled be  noted  exercise Although  minimize  i n the e q u a t i o n ,  marginal  f o r the pooled  this  the  a s p e c t of  concerns  the  aggregation  was  the  degree  aggregation  schooling  sample  about  f o r e d u c a t i o n . An i m p o r t a n t  of c a p i t a l in  points  0. 53  17.35  the r e t u r n to education  specification  capital  schooling  $2101. S e v e r a l  estimated  26  the revenue e q u a t i o n a  -2.35 (-0.59)  0.59  3.11  Number o f Observat ions  return  -0.95  of of the  coefficient  to  71  include  the  component most o f  effect  of  the  embodied  capital,  these  considerable  i f this of  introduce parameter.  capital  bias  an  in  education  from o p t i m i z i n g  captured.  1 2  and  Finally,  irrespective discussed  ceteris  of  i n the  See R i c h a r d in Canada," 1979, p. 33.  the the  the  we  be  the  the  The  to  Also,  ommission  the  to  sense,  any  of  of  family  of  (1977),  measured  levels  input  Since  1 2  expect  isolated.  returns  paribus  each  school returns  inputs labor  the  are to  such  as  are  not  commodity  already  has  the  school  of  previous  a  can  p r o b l e m of a g g r e g a t i o n groups  be  p r o d u c t i v i t y of  Griliches  into  of  expected  would  marginal  to  bias  In a d d i t i o n , s i n c e  capital  levels  service flow.  r u l e d out.  according  measured  total  the could  i s not  upward  a  total  items,  in  effect  variable,  the  the  t e c h n i c a l change a r e  increment  possibility ability  optimizing  given  d y n a m i c s of  in  schooling  of  receipts been  chapter.  R. B a r i c h e l l o , "The S c h o o l i n g of Ph.D. dissertation, University  Farm Youth of C h i c a g o ,  72  T a b l e 4.3 : E s t i m a t e s Products f o r the T o t a l Independent Var i a b l e  of t h e M a r g i n a l Revenue Model 1980 Data  Unit  Value  1981 Data  Pooled Data  Operator's Education  $/ yr.  Operator's Labor  $/ hr.  16.00  39.00  31.00  Aggregate Capital  $ flow  0.07  0.11  0.14  6735.00 4666.00  4659.00  H i r e d Labor Expenditure  $  2.26  1.13  1.49  Non-Labor Expenditure  $  0.61  0.86  0.66  T a b l e 4.4: E s t i m a t e s o f t h e M a r g i n a l Value Products f o r the V a r i a b l e P r o f i t Model Independent Variable  1980 Data  Unit  1 981 Data  Pooled Data  Operator's Educat ion  $/ yr.  7035. 00  231 . 00  2101.00  Operator's Labor  $/ hr.  16. 00  34. 00  26.00  Aggregate Capi t a l  $ flow  0. 1 3  0. 1 6  0.15  $  N. A.*  N. A.  N.A.  H i r e d Labor Wage Rate  * Not a p p l i c a b l e b e c a u s e o f wrong s i g n on p a r a m e t e r  The is the  return  $31 p e r hour return  pooled  data.  to operator's  f o r the pooled  to  operator's By  way  of  labor  data.  labor  (revenue  In t e r m s  equation)  of  i s $26 p e r hour  comparison,  rates  profits, f o r the  charged  by  73  tradesmen These  and  results  operator  r e t u r n s to  capital 15  cents  equation.  flows  From  are  possible  causes data  labor  skill.  and  than  l a b o r and  of  gets of  pooled  For flow  this  every  i t .  operator  limits  Operators  may  may  over  be  Since  farmers  they  may  the  the  amount  invest  of  tend  to over  "error-in-variables"  the c a p i t a l  parameter  on  of  has  their  measure and  to and  rate  goods  may  be  c a p a c i t y of can  to  less  labor  to an  handle.  Another p o s s i b l e of c a p i t a l  own  capital  assets. This introduces  stock. stocks  introduces a  bias  in  1971).  P a u l A. Samuleson, and Anthony Scott, Economics G r a w h i l l Company of Canada, L i m i t e d , 1968), pp.647-72  1 3  1 3  worked,  faster  less  they  value  Some  technology  i n hours  reason.  their  capital  productivity  of c a p i t a l  work  these  Historically,  the p h y s i c a l  to value  (Kmenta,  view  more c a p i t a l  unit  profit  a dollar.  improved  unit  for this  value  than  of  pooled  the  spent  growth  reported d o l l a r  were a s k e d  farm  terms  of  noted.  l a b o r e r has  addition,  of  i n the  been g r o w i n g a t a  r e t u r n per  In  point  dollar  r a t e of has  standard.  In  in  increase in  c o s t s because each c a p i t a l  complement  sample  return less  because  hence each  low.  14 c e n t s  problem are  capital  the  are  management  capital  work w i t h . Thus,  an  farm  B e c a u s e of a . s l o w e r  amount  cause  the  as a  t h a t the value  r e t u r n of  seem t o show an  the  than  in  disturbing.  farmer  Canadian  a  used  i s reasonable.  capital  has  a  a  both  be  i n a management s i t u a t i o n  revenue,  results  may  c o n f i r m the h y p o t h e s i s  The  sample,  professionals  (Mc  74  Hired strong  returns  $1.49  per  $1  labor  and  non-labor  in production. paid  Returns  i n wages i n the  i n p u t s have a r e t u r n of  $0.66 per  returns  inputs  to  non-labor  Farmers c o u l d  be  other  inputs  b e c a u s e of  other  hand  and  The has  this  sign  due  to  left  out  Another  enough v a r i a t i o n  on  the  wage r a t e had  of  in  feed  an  of  the  On  the  outcome.  only  as  prices  variable itself.  Some of  t o be  using  by  profit  price available  problem c o u l d  inputed  and  uncertain  variable could  such  low  overuse.  technologies.  the  to t h i s  variables  source  of  wage r a t e v a r i a b l e i n the  wrong  be  problem one  are  Non-labor  animal  place  s i g n . Being  model t h e  this  be  wrong  the  on  could  the  in  inputs.  The  show  labor  sample.  $1.  i n f l u e n c e the  hired labor  hired  pooled  changing  takes  may  to  fertilizer,  ever  production  environment  equation  overusing  expenditures  probably of  be  other lack  the  a  of  data  provincial  a v e r a g e wage r a t e . In equal of  to  resource  resources  management channeled and  summary,  less  education, input.  some m a r g i n a l  p r i c e s although  i s assumed. From the and  i n the to this  value  economic  policy  direction  of  capital  and  study  shows  an  products  efficient  standpoint  of  labor  non-labor education  and  inputs. to  be  not  allocation good  more r e s o u r c e s  family  are  farm  should  hired As  be  labor regards  productive  75  4.2  Estimation  of R e t u r n s t o F i n a n c i a l  The aim of t h e p r e s e n t returns an  to  discussed  in  variable, scores  M,  of  financial after to  participation  skills  training  and  i s intended in  education financial course  to  is beneficial.  and t h e s e  is  efficiency  of  associated  with  the  to  operator  variables  Thus, t h e e s t i m a t i n g model  course  prior score  financial  that  profits  i s , of c o u r s e ,  skills)  score  hypothesized the  t o and  and  so  a degree  it  t h e b e n e f i t s from an  improvement  through have  measure  skill  may  be  formal in  the  participation  an  because  this  provided  of s c h o o l i n g and t h e  between  test  operator's  The measure  and  s k i l l s . However,  management  An  test  t o be a r e f e r e n c e  There  between y e a r s  distinguish  the  s c o r e s a r e i m p r o v e d and  ( f i n a n c i a l management  difficult  that  capital  be measured p r i o r  in increased sales  complementarity  human  abilities.  may  test  A  than  to incorporate  i n the c o u r s e .  participation  also result  variable  the  participation  p r o g r a m . The  complete  section.  management  the  so as t o a l l o w f o r  extension  more  previous  financial  their  management  such  the  is  i s included in order  through  will  specified  management a b i l i t i e s  their  and  of  skills  e x - a n t e e v a l u a t i o n of t h e p r e s e n t model  Skills  section i s to estimate  f i n a n c i a l management  empirical  Management  effect  these this  in  on  the  skills  are  efficiency.  becomes  Inn- = InA + alnW •+ |31nK + 7 l n L  + 0lnS  + 01nM  + wlnMlnS  + u  76  (4.5)  where 4.1.  every  The M term  skills.  An  financial per  other  unit  stands  interaction  effect on  logarithmic  production  evaluated  4.2.1  the  prior  to  by d i f f e r e n t i a t i n g t h e  ].[ TT/M ]  geometric  results  in  Tables  regression  equations  marginal  value  estimation, financial  (4.6)  means  of  profits  and  and  management  Table  products.  posed  e s t i m a t i o n procedure  4.5 and 4.6. T a b l e  test  the p r o f i t  signs  this  financial  management  This procedure  Management  of  individual  entered  unexpected  skills  f o r . The  h o l d i n g e v e r y t h i n g c o n s t a n t , as  i n c l u d e s an a g g r e g a t e d  and  (M&S)  and  management.  The  on  management  education  allowed  i s obtained  R e s u l t s of F i n a n c i a l  reported  between  management  = [ 6 + wins  at  of f i n a n c i a l  i s also  of f i n a n c i a l  3TT/9M  financial  effect  skills  equation,  r e m a i n s as d e f i n e d i n s e c t i o n  f o r an i n d e x  management  training  and  variable  In  4.6  the  earlier  answers t o i n d i v i d u a l  were t r e a t e d as s e p a r a t e f u n c t i o n as independent  two p r o b l e m s . Many q u e s t i o n s  and  other  questions  score  are  4.5 d e a l s w i t h t h e  with  the  test  which  resulted  estimated stages  of  questions variables variables. acquired i n a non-  77  singular the  total  from in  matrix.  Another  s c o r e on c a s h  tax  the  variable  flow  noted  skill  livestock  attempt  producers  horticulture financial  and  test to  management  of  large.  Another  horticulture these  equation size  results,  did  sign  Results  for  general,  the  operator's  not  l a b o r and c a p i t a l  was  to  parameter  term  the but  For l i v e s t o c k retained i t s  parameter  Thus,  value  extremely  estimate  interaction  signs value  the marginal  as  for  from  changed earlier  the pooled  4.5 and 4.6.  and l a b o r v a r i a b l e s , and  i n the p r e v i o u s  c o n c l u s i o n s remain  The  significant.  marginal  the r e s u l t s .  i n Tables  results.  t o e d u c a t i o n and  on t h e r e s u l t s  education  have been d i s c u s s e d  in  while  the  management  relies  test  h o r t i c u l t u r e and  but t h e  insignificant.  section  flow  hand, had r i g h t  made  n o t improve  sample. T h e s e a r e r e p o r t e d  capital  into  of 0.68 b u t t h e e d u c a t i o n  and became this  management  variable  was  without  the f i n a n c i a l  and  size  management  equation  efforts  financial  although  on t h e o t h e r  attempt  variables components  satisfactory  was n e g a t i v e  financial  score  two  sum o f c a s h  group data  t h e above m e n t i o n e d v a r i a b l e s ,  product  as s e p a r a t e  had t h e wrong s i g n  equation,  total  scores.  variables,  of e d u c a t i o n  the  these  the  d i d not g i v e  equation  livestock  product  in  skills  i s d e f i n e d as an a g g r e g a t e d  An  for  and  earlier  test  s c o r e s and t a x p l a n n i n g  The  f o l l o w e d was t o e v a l u a t e  skills  and e s t a t e p l a n n i n g  t h e e q u a t i o n . As  comprise  procedure  sections  t h e same. N e e d l e s s variable  and,  t o say,  consistently  show  78  strong of  effects  the  on  p r o d u c t i o n and  financial  management v a r i a b l e  p a r a m e t e r s of most of for  the  the  education  management v a r i a b l e , 0.77(Table  4.2)  the  and  $26(Table  variable  included this  product  became  result 4.2)  variable  t o 0.81  product  represents capital  parameter  also  Table  geometric 4.5  shown as in  line  is,  the  is  less  retains  and  earlier  that a  the  with  allowing  previous  responsiveness than the  one  This  1%  percent  result  (inelastic). effect  of  0.77(Table  $26  value  per  reasonable.  hour The  0.09.  estimated  as  (4.7)  is derived  interaction  0.40(Table  to changes The  will  marginal  of  result  the  4.6)  hours)  sample. T h i s r e s u l t  of p r o f i t s  interaction  marginal  wlnM  for  f o r the p o o l e d the  i t s size  <j> +  =  value  $27(Table  by  was  management  i n c r e a s e d from  of e d u c a t i o n  . (S/TT)  labor  i t s estimated  (represented  mean i s 0.32.  after  -1.95  b e c a u s e of  financial  conclude  noted  except  marginal  l a b o r of approximately  elasticity  (dn/dS)  the  the  the  financial  of o p e r a t o r ' s  and  being  the  o p p o r t u n i t y c o s t that appears  The  at  profit  operator's an  may  affect  significantly  4.5)  labor  p e r c e n t . As  of  With  parameter  we  in operator's in  4.4).  introduction  does not  corresponding  0.81(Table Hence,  The  Without  elasticity  the  was  increase  variables  variable.  product  respectively.  income.  value  between  from  parameter is  still  4.2);  that  in  education  has  decreased  education  and  79  financial  management  education  may  of  percent  0.32  variable  skills.  Thus,  a  be v i e w e d as a p p r o x i m a t e l y  continues  in  the  t o have  variable t h e wrong  1% improvement i n causing  profit.  a  change  The wage  rate  sign.  T a b l e 4.5: V a r i a b l e P r o f i t F u n c t i o n t o Measure the M a r g i n a l P r o d u c t i v i t y o f F i n a n c i a l Management ( t - s t a t i s t i c s i n parentheses) Independent Var i a b l e  U n i t of Measure  Operator's Educat ion  yrs.  Operator's Labor  hour  Aggregate Capi t a l  1981 Data  Pooled Data  7.54 (1.17)  -5.62 (-0.85)  4.71 (1.20)  $/  0.61 (2.03)  0.70 (2.34)  0.81 (4.15)  $  0.09 (2.49)  0.10 (3.52)  0.09 (4.58)  0.50 (0.53)  0.56 (0.82)  f low  H i r e d Labor Wage R a t e  day  0.89 (0.68).  Financ i a l Management  points  7.39 (1.11)  -7.11 (-0.96)  4.93 (1.21)  -2.90 (-1.00)  2.57 (0.88)  -1 .95 (-1.14)  (-19.64) (-1.21)  15.51 (0.92)  -12.75 (-1.36)  $/  Financ i a l Management and E d u c a t i on Intercept R  2  F Number o f Observat ions  Financial on p r o f i t the  1 980 Data  0.58  0.53  3.09  1 1 .79  14.40  47  73  26  management s k i l l s  and i n t e r a c t w i t h  pooled  0.33  sample.  The  education  show p o s i t i v e as  elasticity  a of  effects  substitute the  in  financial  80  management  variable  be  which  0.16,  empirically, interaction  effect  variable  own-effect of  skills is  measured  return per  other  f o u r U.S. C o r n census data  years,  year  formal that  of  of  with  an  outweighs product  when a  of  negative  the marginal  education  product  The r e s u l t  schooling  from  or s c h o o l i n g  financial  s t u d i e s . Fane(l972)  on  management on  education  profit. with  reported a  1964  county  This  returns marginal  data  for  S t a t e s . B a r i c h e l l o ( 1 9 7 7 ) u s i n g t h e 1971  $286  f o r adjustments  higher.  value  t o be t o o out o f l i n e  o f $321 p e r y e a r Belt  of  of s k i l l .  per  an a n n u a l  year  for  marginal  product  a l l Canada.  i n the r a t e s of i n f l a t i o n  the r e t u r n to education  somewhat  the marginal  f o r Canada e s t i m a t e d  schooling  allowing  a  a  year,  does not a p p e a r in  to  negative.  to  $968 p e r u n i t  value product  of  equations  When a n e g a t i v e c r o s s e f f e c t  becomes  the r e t u r n t o  (4.7)  T h e o r e t i c a l l y and  becomes n e g a t i v e . S i m i l a r l y ,  $1672 to  estimate  of r e g r e s s i o n  outweighs the c r o s s e f f e c t ,  The  relation  inelastic.  of a v a r i a b l e ,  that v a r i a b l e  averaged  fairly  using  depend v e r y much on t h e m a g n i t u d e o f t h e  effect.  own-effect  that  is  the r e s u l t s  interaction the  was e s t i m a t e d  After  over the  o f $1672 i n 1981 d o l l a r s  is  81  T a b l e 4.6: E s t i m a t e s o f t h e M a r g i n a l R e t u r n s - P r o f i t E q u a t i o n w i t h F i n a n c i a l Management Variable Independent Variable  Unit  Operator's  $/  Education  yr.  Operator's  4426.00  1785.00  1672.00  17.00  27.00  27.00  Aggregate  $  Capital  flow  0.13  0.19  0.15  H i r e d Labor Wage R a t e Financial Management  $/ day $/ point  N.A.  N.A.  N.A.  1339.00  -5815.00  968.00  questions Chapter  budgeting  for  on c a s h  financial  statements.  r e v o l v e around  taxable  capital  gains,  capital  cost  allowance,  child.,  differences  interpreting that  through  of the  investment  statements,  problems  of  validity  of  a  can  between d e p r e c i a t i o n  of  $968 i s t h e n  the return,  in  level  debt  i n machinery,  t y p e s o f income  marginal  assets that  the r e s u l t s most  around  On t h e o t h e r hand, q u e s t i o n s on t a x  on f i n a n c i a l  these  a s p e c t s of f i n a n c i a l  the s k i l l  the nature  flow c e n t e r e d  techniques, f i n a n c i a l  planning  important  on c a s h  costs incurred  expense  assumed  management,  f l o w and t a x p l a n n i n g have been d i s c u s s e d  3. Q u e s t i o n s  servicing,  In  Pooled Data  hr.  As  and  1981 Data  $/  Labor  in  1980 Data  tests  tax  will, be  rates,  recaptured  rolled  to  and c a p i t a l  gains.  management  i t is  adequately  represent  m a n a g e m e n t ( A i k e n ,1971).  on a v e r a g e ,  of f i n a n a c i a l  a  t o a one u n i t  management  The  increase  abilities.  It  82  is  the  return  to  a farmer  make i n h a n d l i n g c a s h minimizing returns  taxable  d e c i s i o n s of  In  terms of  who  attended  cost  cost  incurred  e s t i m a t e per  allocated  budget By  extension,  of  the  the c o u r s e  and  decision  they  strategies  for  income. One nature  may  t o be  course  p a i d $13  of  Corn  Belt  farmer  may  for this  of  be  high.  and  returns,  dollars.  in offering  p r o v i d e d by  expect  This  with 1976,  other 1977)  value  i n c l u d e the  the c o u r s e . A examining  s t u d i e s on  the  has  r e t u r n s to  published  products(Table  estimated a marginal  return  of  several 4.7)  to  $4.48  per  e x t e n s i o n time  allocated  to crops  data  S. A.  a r e t u r n of  $600 p e r  crops(1959-64  Corn  i n t h e U.  Using  allocated  1964  data  for  Oklahoma, Huffman e s t i m a t e d a $1000~$3000 livestock  per  day  and to  Iowa,  f o r the  North  marginal  of e x t e n s i o n t i m e  activities.  fee  project.  marginal  e x t e n s i o n time  data).  the M i n i s t r y  comparison  e x t e n s i o n s . He hour  by  Huffman(1974,  estimates  and  this  right  of c o u r s e , a s u b s i d i z e d f e e f o r i t does not  expenses  of  problems  i n c i d e n c e on  to c o r r e c t  farmers is,  tax  flow  f o r every  value  1954-64  Belt  Carolina  and  product  allocated  to  day  of  crops  83  T a b l e 4 . 7 : Huffman's E s t i m a t e s i n t h e U.S.A Study  Data Set  Corn  1954  1 974  1976  Marginal  1959  Very reestimate Carolina $564  $8000  aspect  results  Griliches,  per  Huffman(1980)  report  Duncan,  day  mix. a  Peterson  that generate  has  return to extension 4.8).  time  of  extension  On  the  summary and  a combined  time  attempted f o r Iowa,  His estimates  of Huffman's r e s u l t s  t o output  Gardner(1980)  Cline)  recently  and O k l a h o m a ( T a b l e  important his  $600 p e r day of e x t e n s i o n a l l o c a t e d to crops  Belt  - 64  the marginal  and  of  $ l 0 0 0 - $ 3 0 0 0 p e r day o f e x t e n s i o n t i m e a l l o c a t e d t o c r o p s and livestock activities  1964  Corn  Value Product Extension ($)  $ 4 . 4 8 p e r hour of e x t e n s i o n a l l o c a t e d to crops  Belt  - 64  Iowa, N. Carolina, Oklahoma,  1 977  of Returns t o E x t e n s i o n  to  North  l i e between  activities.  An  i s the s e n s i t i v i t y of other of  hand, four  Fitzharris internal  r e s e a r c h and e x t e n s i o n . T h e s e a r e r e p o r t e d  Sim  and  studies(by and  Lu  and  r a t e of r e t u r n t o below.  84  T a b l e 4.8: Huffman's New Estimates R e t u r n s t o E x t e n s i o n i n t h e U. S. A. -1964 D a t a S e t Data Set  Marginal  Value Product Extension  of  of  ($) I owa  $2357 p e r day of e x t e n s i o n a l l o c a t e d to crops, l i v e s t o c k .  North Carolina  Negat i v e  Oklahoma  $564 p e r day o f e x t e n s i o n a l l o c a t e d to crops, l i v e s t o c k .  I owa  $8000 p e r day of e x t e n s i o n a l l o c a t e d to crops  North  C.  Negat i v e  Oklahoma  $2058 p e r day of e x t e n s i o n a l l o c a t e d to crops  Gri1iches(1958) of  an a n n u a l  r e t u r n between 20 t o 40 p e r c e n t  hybrid data  sorghum.  sets(  an  annual  Lu  and  return  Peterson  1937-42; internal  for  internal  hybrid  rate  corn  and  and F i t z h a r r i s ( 1 9 7 5 ) u s i n g  four  1947-52;  1957-62; and  1967-72)  derived  r a t e of r e t u r n of 0.34  and 0.51  percent.  (1938-48;  1949-59;  internal  rate  Cline(l976)  1959-69 and  an  estimated  for  the  1969-79) e s t i m a t e d  U. S. A. an a n n u a l  of  between 23.5 and 30.5 p e r c e n t . D u n c a n ( l 9 7 2 ) d e r i v e d  annual  internal  Australia  ranging $968  r a t e of r e t u r n i n p a s t u r e between  58.0  estimate  of  marginal  financial  management d o e s seem  and  return to f a l l  60.0 per  improvement i n percent.  unit  Our  of s k i l l i n  w i t h i n t h e bounds of  most of t h e s e s t u d i e s . Policy  implications  t h a t may  be drawn  for  these  85  financial as:  management  Firstly,  skills  important  input  results,  i t should  that  profitability  than the  financial  be e x p e c t e d these  c o s t of t h i s  l a r g e number the c o s t  per  of p a r t i c i p a n t s  to the funding  skill  Fourthly,  i s second  estimating of  only  equation.  from  should  improving  relationship This as  study  their  could  be  return  for  financial of  realized these  this  that  each o t h e r .  farmers  distribution  o f r e t u r n s among  these  the  course  management in  the  that the u n i t more  t h a t can be made skills. concerns  program  the  management.  variables  The p o l i c y  interact  i m p l i c a t i o n of  of  this  nature  form o f e d u c a t i o n . efforts  h e l p even  farmers.  p o i n t of  the  and f i n a n c i a l  as an a l t e r n a t i v e  could probably  higher  advantages,  result  example, a c o n c e n t r a t i o n o f e x t e n s i o n  educated  and g i v e n  i t s effect  management  education  greater  seem t o j u s t i f y  offering  in  Thus, g i v e n  i s t h a t an e x t e n s i o n beneficial  far  to f i n a n c i a l  I t i s of c o u r s e  seems t o s u g g e s t  result  is  the  marginal  a g e n c y . From a s o c i a l of s c o r e  these  increase  i t i s a l s o probably  to education  aspect  between  substitutes  this  skills  an  program  the e s t i m a t e d  become aware o f t h e g a i n s  Another  For  the  inputs are d i f f e r e n t .  farmers  extension also  i n c u r r e d by t h e M i n i s t r y i n  farm.  are  on b a s i s of  an  will  in  summarized  c o u r s e ( $ 1 3 ) t o the farmer  v i e w , t h e $968 r e t u r n p e r u n i t expenses  that  of the farms. T h i r d l y , change  be  management  Secondly,  skills  o f $968 p e r u n i t the  than  in  workshops may  in production.  improves  return  training  on  less  out the unequal  86  These  results  participation statistics pooled  and  The  final  groups  of  value  input  and  (Table  of  farmer  section  farmers  by  evaluating  evaluated  management "farm  the  results  Estimation  of  as  they  financial  are  skills  test  referred  the  a l l o w one  management  marginal t o examine for  In the r e m a i n i n g  each  part  of  for a grouping  i s r e p o r t e d . These expression  the  (4.6)  results at  every  of  were data  In o t h e r words, e x p r e s s i o n  dir/dM  was  results  of  management  value products  into various sizes  obtained point.  the m a r g i n a l  sample  been computed a t  financial  i n t h e sample.  Our mean  of has  H e r e a f t e r , these  financial  course  Farm  product  and  of  examined.  a t t h e s e p o i n t s does not  effects  this  are  Per  the  these  other v a r i a b l e s  "sample means".  value product  individual  4.6).  for  analysis  The  t o as a t t h e  the  those  Product  marginal  the e f f e c t  producers.  farmers  sample means f o r p r o f i t  skills  of  are  Marginal Value  management the  parameters  different  not d e t a i l  individual  sample. In the  affect  4.2.2  for  do  skill  level"  these  for  =  [  +  each level.  situation.  results  6  wlnS  ].[  farmer's  TT/M  (4.6.1)  profit  These  results  In o r d e r  t o make  possible  ]  are the  and  financial  referred  to as  presentation  f a r m e r s were g r o u p e d  by  size  of  87  their  prof its(independent  statistics  are  individual  At products  for  positive.  The  group  presented  farmers  value products  lies  variable).  with  may  the  be  Table  negative  obtained  farm  each  in  level  the  income  minimum v a l u e s  $1416  and  l i e between  -$14037  of  considerable  d e g r e e of d i s p e r s i o n  indicated  their  the  expected  $4551.  Fifty  positive  variable  to b e n e f i t those  group  is  standard  lowest  skills,  ranges  by  $147  profit through  marginal  value  have a n e g a t i v e m a r g i n a l  out  product value  any  one  group an  income  farm,  and  mean  and  there  is a  g r o u p means as  Farmers  falling  ($300-$9000) a r e in  their  ($100000 t o $400000)  of a p o p u l a t i o n of  product.  the  The  improvement  for this  to  -$159.  the  deviations.  value  negative  per  and  around  C.  from  positive  i n the h i g h e s t group s i x farmers  in  on  marginal  the m a r g i n a l  $43832  performance  into  each  positive)  r a n g e of  group  sample  Information  Appendix  maximum r e t u r n s o b s e r v e d between  by  4.9.  (or  from  These  variable  73  by  have a and  17  88  T a b l e 4.9: Summary S t a t i s t i c s on m a r g i n a l per Farm by V a r i a b l e P r o f i t G r o u p Var i a b l e Profit ($)  S.D.  300-9000  1 7  1 47  370  1 0000-20000  1 4  422  1 1 54  30000-40000  1 4  •254  50000-90000  1 3  1 00000-400000 Average f o r the Sample  A that,  production skills  804  -969  1 633  1831  3875  -4223  7735  1 5  4551  14614  -14037  43832  73  1 425  6880  -1 4037  43832  that  without  the  financial  at  the  i s also  Expected  have,  emerges from  have  an  conclude  that  level(section  management  attempted  input  the  section  4.2.2).  obtained  t o show  effect if  on  these  the e f f e c t  on p r o d u c t i o n .  On  4.2.1) the b a s i s  a t t h e sample means,  effect  the  Changes i n P r o f i t s  so f a r ,  skills,  in  possible.  sample means of t h e v a r i a b l e s ( p r o f i t  management  analysis i s  participation  skills also  this  t h e n an improvement i n t h e o p e r a t i n g  of farmers  We  predict  2490  management  improved  Predicting  product  -21 92  and p r o f i t . One may  are  efficiency  1416  and even  financial  Min imum Max imum -1 59  conclusion  on a v e r a g e ,  course,  4.2.3  Number o f Mean Farmers  Return  of  the  British  and  of  T h i s was done and  at  financial the  of the m a r g i n a l  farm value  an a t t e m p t  i s made t o  Columbia  financial  89  management p r o j e c t  on p r o f i t s  of t h e f a r m e r s who have  the  financial  management.  training  in  In  other  taken words,  r e l a t ion  3TT/3M = [ 9 + colnS  becomes o u r p o i n t  of  Suppose management equation  unit  A  is  change  course  on p r o f i t  financial  A  a  +  period  t.  period the  financial  by t h e f o l l o w i n g  (4.8)  management Suppose  in  on p r o f i t period  as p e r i o d  t prevail  with  management  skills(M)  are expected  the  slope  of  t h e new  taken  a t hand  level  t+,. Mathematically  expected  value  during  (not n e c e s s a r i l y  u n c h a n g e d . The p r o b l e m profit  i s represented  of  and 6 i s t h e m a r g i n a l  constant  due t o t h e c o u r s e  words,  t the e f f e c t  ^  t  m +  in financial  in  conditions  level  in period  :  V  where  (4.6.2)  departure.  that  skills  ] . [ TT/M ]  the only  that  of r e l a t i o n  without  the  t+,  the  same  exception  that  t o assume a new  period.  i s to predict  is  of a  In  the i n t e r c e p t )  of f i n a n c i a l this  effect  other remains  the e f f e c t  management  equivalent  s k i l l s in  to  (4.8) i n p e r i o d  finding  t+, g i v e n  as:  E  [  ] = E [ A + flM^ +  ]'.  on  (4.9)  90  Hence, we w i s h financial  estimate skills  equation  (4.8) from  t o a change  V or  in financial  " t  1  f  e B [  prior  Air  is  the  change  a  change  due t o t h e c o u r s e  management  - t M  therefore  skill  in  profit  i s given as:  ]  about  the  section,  due  performance  is  the  to  the  course.  an  benefits.  Some f a r m e r s  scores  management  prior  t o and a f t e r  g i v e n t h e element  decrease  in  dislearning  test  because  assumes t h a t  test  scores  t o o show  of chance scores  an  skills($968) in  financial  argument  not  (4.10)  was  farm.  made  In t h i s  a l l . farmers  workshops  who  expect  positive  negative  changes  between  training.  I t may  in  every not  of random e r r o r s .  reflect  i s the  Relation  individual  may  scores r e f l e c t  case  equation.  section of  change  too, i t i s recognized that financial  test  AM  the p r e v i o u s  attended  8 in this  in p r o f i t ,  becomes our p r e d i c t i o n In  in  on p r o f i t s .  (4.9) t h e change  o f f i n a n c i a l management  t o t h e c o u r s e and  management  in  1  of  (4.10)  marginal value product  that  %  effect  Aw = 0 AM  where  test  the  management  Subtracting due  to  be  test  argued  score,  necessarily  This  study  a  mean however  t r u e knowledge and c h a n g e s  a change  in financial  management  skills. In benefits  from  order  to present  t h e program,  these  farmers  results  on t h e e x p e c t e d  were g r o u p e d  by s i z e  of  91  t h e i r the  p r o f i t s .  In  c o u r s e ,  Table  the  average  the  c o u r s e ,  the  the  average  expected  s p e c i f i c  score  Before  to  change  in  1.7  2  and  change  of  d e f i n e d p r o f i t  small  s c o r e s  to  the  f a r m e r s ( l 7  r e s u l t  example, 1%.  expected  a  the  However, in  course  to  54%  to  a  for  the  groups  group  income  income  for of  percent  t h i s  $1968. in  base  between  group For  the  p r o f i t s improvement.  an  average  in  p r o f i t  change  . before  i s  that $300  t h e i r  in  p r o f i t s  there e n t i r e  i s  a  sample,  $2089.  in the the and  p r o f i t s .  i n c r e a s e s .  change  was  l i e s  between in  t e s t  score  . i n d i c a t e s  as  even  are  average  w i t h  p r o f i t  groups,  t h i s  sample  expected  improvement  group  for  The  improvement  average  course  t h i s  p o i n t s .  one  and  average  course  of  course  the  the  percent the  to  average  w i t h  the  before  because  e n t i r e  i n d i v i d u a l  income  change 3%  due  the  s c o r e s  s c o r e s  before  2.2  the  l a r g e s t  p r o f i t s  average  e q u i v a l e n t  of  t e s t  the  percent  r a t i o  d e c r e a s e s  for  i n c r e a s e  The  t e s t  s e s s i o n s  of  except  farmers  expect  for  A f t e r  for  d i f f e r e n t  in  p r o f i t  and  change  p o i n t s .  for  $9000)  only  s c o r e s  the  in  10.0.  t e s t  average  l e v e l  t r a i n i n g  a  as  c o u r s e ,  the  12.2,  3  due  p r o f i t  change  was  p o i n t  the change  groups  o b t a i n e d  improved  This  average  income  p r e s e n t e d .  4.10  This  For i s net the i s  92  T a b l e 4.10: Summary S t a t i s t i c s P r o f i t Groups  on  Number of Farmer  Average P r o f i t Before Change  Improve ment %  17  10.2  1 .7  3083  1 680  54  14  10.5  3.0  1 9650  2939  15  14  9.7  2.4  38882  231 6  6  1 3  10.5  1 .7  71 632  1 601  2  15  9.3  2.0  173010  1968  1  10.0  2.2  60250  2089  3  In  Table  standard specific  4.11  4.10,  4.11  d e v i a t i o n s , and income the  (or  p o s i t i v e ) . changes in p r o f i t  between  $7744 and  $11132  and  around  these  are  number of  due  A p p e n d i x D may in p r o f i t  maximum  groups  to d e t a i l  change  and  t h e mean change  used  one  and V a r i a b l e  Scores Change  Tables  a  Scores  Test Before  Average f o r t h e Sample  and  Test  in  and  presented.  case  d e v i a t i o n of  of where e x p e c t e d  D may  be  who  expect  negative  profit.  The  maximum,  expected  by  income  groups lies  i s a h i g h d e g r e e of  g r o u p means w i t h  for  farmers  to t r a i n i n g  There  course,  values  Appendix  $10648, the minimum change  -$1936.  combined.  to the  minimum  the  exception  $20000 income g r o u p . T h i s g r o u p has standard  due  be  $2913. T h i s change  of  ranges  between  variability the  a mean of  $10000  $2939  income g r o u p has  in p r o f i t  -  and only  i s negative.  93  T a b l e 4.11: Summary S t a t i s t i c s on E x p e c t e d t o t h e Program Var i a b l e Profit ($)  Number o f Farmers  S.D.  due  Mi n imum Max imum  300-9000  1 7  1 680  3545  -3388  1 0648  10000-20000  1 4  2939  291 3  -1936  8228  30000-40000  1 4  231 6  4754  -91 96  91 96  50000-90000  1 3  1 601  4825  - 11132  7260  1 00000-400000  1 5  1 968  4931  -9680  7744  Average f o r the Sample  73  2089  41 53  -11132  1 0648  In (almost to  Mean  Profit  Appendix  it  i s . shown  2/3) o u t o f a p o p u l a t i o n  have p o s i t i v e In  changes  conclusion,  of  farmers  expect  of  farmers  expecting  performance small  C  in  the  in relation  recognized  positive  that  test  to  after  those  expected  level  situation,  return  t o f i n a n c i a l management  management vice-versa.  skills  act  as  that  changes  51  training.  the m a j o r i t y  due  the t r a i n i n g  i n the t e s t farmers  least  i n p r o f i t s . The  negative  o f random e r r o r s  due t o  indicate  expecting  result  most  profits  changes  negative  at  of 73 f a r m e r s a r e e x p e c t e d  in their results  that  scores.  poor  is relatively It  could At  a positive  decisions.  a substitute  to  otherwise.  changes  have  number  Also  is  be t h e  the  farm  marginal financial  f o r e d u c a t i o n and  94  CHAPTER V SUMMARY, CONCLUSIONS  AND  This chapter the  IMPLICATIONS FOR FUTURE RESEARCH  c o n s i s t s of a b r i e f  content  of  research  undertaken  outlines  some of t h e c o n c l u s i o n s  results.  Implications  for  in  derived  future  this  from  research  b a s e d on some o f t h e p r o b l e m s e n c o u n t e r e d  5.1  summary  on  the  t h e s i s and  the e m p i r i c a l are  discussed  i n work.  Summary In  attempt  introductory  chapter  was made t o r a t i o n a l i z e  the r o l e  production.  the  It  is  recognized  inputs are i n themselves was a r g u e d labor  that  force,  then  there  extension  program  British  Columbia.  But,  scarce  budget  appropriate financial  resources,  management Since  extension primary  to  s t e p of t h i s  a  of p h y s i c a l  quality  of  the  b e n e f i t s from t h e management  extension  is  in  need  in  a c t i v i t i e s use to  develop  an  f o r e v a l u a t i n g the b e n e f i t s of the  ultimate is  to  o b j e c t i v e of t h i s  extension  education  in production. It  financial  because  t h e s i s an  program.  the  program  expected  in  there  methodology  inputs  improves the are  present  of  that q u a l i t i e s  important  i f education  of t h i s  this  thesis,  extension  evaluation  production  and c o s t s  improve thesis  income. was  goal  of  was  In o r d e r  and  i n order  to  agricultural  farmers' to  to  income,  try  t o do t h i s  (1) t o r e v i e w  (2)  an  the  review  arrive  at  to  the  relate  the f i r s t  literature  on  the  theory of  a  conceptual  95  model  that  exercise.  In  its  ability  and  their  needs,  would b e s t this  process,  qualities  on  production  on  and  be  problems  encountered  correctly  and  outputs.  Another  due  in  most v i a b l e respond  one  well  of  formal  gross  all  variables.  those 0.77 both  the  education effect  effects  less  sales  respect  the  and  data of  forms The  results  t o measure on  their noted  due  to  variables and  bias considered  is a  levels.  in order  The  and  other  step  was  next  to choose  Cobb-Douglas  the data  data  inputs  i n some i n p u t  the  s e t as a p r e l u d e  dynamic  are  income. The  the  seemed  to  needs and  was  to  the  chosen.  considering  and  source  study.  to  Empirically,  T h i s was  in  for  inputs  d i s c u s s e d . I t was  price  functional  for this  fairly  therefore  effect  of  potential  to review  and  attempting  to lack  chosen  of p h y s i c a l  variables  were  expected  l a c k of v a r i a t i o n  was  effect  measured  estimation  this evaluation  f u n c t i o n was  total  some b i a s may  step  a profit  the  conceptual  possible  t h e p u r p o s e of  to capture  implications that  suit  and The  percent  on of  p r o d u c t i o n and financial  t o show t h e  of e d u c a t i o n . The  than  one,  profit  i m p l y i n g an to  changes  elasticities  of g r o s s  to education with  first  l i e between  allocative  estimated  parameters  inelastic in  and  and  respect to c a p i t a l  response  the  s a l e s and  to  specifications.  without  technical,  respect with  profit  management a p t i t u d e .  0.40  operator's  show  independent profit  0.53  l a b o r between 0.05  of  with  percent; 0.54  percent  and for  96  The  estimated  s c h o o l i n g ( e d u c a t i o n ) on g r o s s and  $2101, r e s p e c t i v e l y .  gross  sales  respectively.  returns  to  a  s a l e s and  profit  and  profits  These  results  are  $31  and  $26  a r e comparable  capital,  which  $1.49  i s low, i s 14 c e n t s  profits.  The e s t i m a t e d  and t o n o n - l a b o r  equation  the  management  training  including  a financial  relationship extension  to  in  o r economic  to  management  skills  attempts  ,  ex-ante  effect  an  of t h e p r e s e n t  parameters financial  are  management The  variable the  and  financial  step  involved  i n the estimated effects  problems. past  sense,  with  profit  of  management  to predict future  the  i n order  By r e l a t i n g t h e  profits,  on  the  this  study  the expected  profits.  introduction  of  Most the  variable.  operator's  t o 0.81  to  extension  robust  labor i s  s c o r e s were a g g r e g a t e d  financial  15  sign.  assess  multicollinearity  in  and  the  p e r f o r m a n c e . The f i n a n c i a l  and t a x management  minimize  In  a r e s u b s t i t u t e s the next  order  rate  The r e t u r n t o  that education  management  hour,  the  sales  i n p u t s $0.66 c e n t s .  assumption  l a b o r on  return to hired  t h e wage r a t e has t h e wrong On  variable  on g r o s s  of $4659  per  with  by t r a d e s m e n and some p r o f e s s i o n a l s .  on  are  The r e t u r n s t o o p e r a t o r ' s  charged  cents  year  l a b o r parameter  0.77  from  $26 t o $27. The c a p i t a l  parameter  retains  i t s previous  size  of 0.09. The e d u c a t i o n  parameter  changed  from  0.32  but  decrease  in  this  r e t u r n on p r o f i t  slightly  from  a  and t h e m a r g i n a l  changes  parameter  changes  0.40 t o  reflects  the  97  interaction management wrong  effect skills.  sign.  between  The  The  wage v a r i a b l e  estimated  financial  management  estimated  r e t u r n to a year  $1672  and  $968 per with  that  unit  most  input  of  education  i s 0.16,  parameter  quite  management  s c o r e . These r e s u l t s  skills  compare  e d u c a t i o n and  of  inelastic.  schooling(education)  financial  s t u d i e s on  financial  c o n t i n u e s t o show  elasticity  of  and  the The  averages  amounts t o  reasonably  extension  its  well  i n Canada  and  elsewhere. Policy importance is  of the  recognized,  similar  implications financial  (2)  workshops  farms,  (3)  financial  the  given  management  of  course($13 be  acquainted with  improvement  in financial  Results marginal  value product  than  Larger  small  farmers $9000) i s  farms  f a r m e r s . The  falling $147,  i n the that  $400000) i s $4551. F i f t y  of most  of  return  per  farm.  of  Given  by  the  more  forthcoming  from  have a  management  marginal  skills. -$14037  value  an  lowest  variable  profit  highest out  The and  products  value product  s i x farmers  cost  positive  marginal  the  the  farmers  average  of  to  skills.  l i e between  larger  $968  incurred  farmer)  a l l farmers  to f i n a n c i a l  have  in production  the p r o f i t a b i l i t y  management  value products  the  study,  individual  not  (1)  this  the b e n e f i t s  show t h a t  estimated marginal $43832.  an  input  t h e expense  the course  to  include:  findings  marginal  justifies  in delivering  should  the  estimated  drawn  management  c o u l d enhance  ministry the  t o be  for  group($300-  g r o u p ( $ 100000  to  of a p o p u l a t i o n of  98  73  have  positive  management  skills.  the e f f e c t  of  expected  to  negative in  range  between  this  next  in their for  the  expected  -$11132 and  whole  $10648. The entire  equivalent  to a  3 percent  all  since  expected, is  ex-ante are  some f a r m e r s  have  average  profit  sample,  financial  farmers  sample was in  to  to p r e d i c t  s c o r e s . The  change  the  change  2.2  points.  The  per  farm  lies  average  change i n  $2089,  which  is  improvement.  Conclusions  The (1)  the  skills  conclusions that  marginal are  and  substitutes  incomes estimated with  of  the by  financial  of  this  farmers  are  management  in  increasing  in B r i t i s h  Columbia,  skills  found  to  production  and  in influencing  The  study  financial  management  other  farmers.  are  substitution equation  management and  (4.5) then  effect twice: with  is  first, respect  as  3 TT/3M3S 2  evaluated  management(M)  the  financial  from  significant  differentiating  respect to  education  and  to each  follow  product  incomes of  (2) e d u c a t i o n and be  value  positive  production  and  Not  test  for  to  profits.  the c o u r s e  profits,  5.2  was  gain  from  products  exercise  on  score  of  The  value  the c o u r s e  changes  test  marginal  and  at  =  [-1 .95] . [ 1 / M S ]  the  sample  schooling(S).  (5.1)  means  of  financial  99  Since substitute with  for  the  the q u e s t i o n  efforts  should  diffusion  more  concentrate  extension  there  education  and f i n a n c i a l  This shortcomings. the  this  study  suggestions  financial  is  management management  educational  testing.  used  satisfy  of  should  reliability  other  words,  and for  be d i r e c t e d  assumption down  other  that  the  t o the m a j o r i t y  effect  studies  between  extent  study  reliability  i t s e l f , the  the methodology. are  the  discussed  be but  questions  revised also  recognizes  (Walter a  test  not  by  two b a s i c p s y c h o m e t r i c validity  test  area  In and  research.  that  experts  has i t s  a r e i n the  the s k i l l  problems  skills  This  t o the  skills.  encountered  the  suggested  farming  p r o g r e s s i v e o n e s . In o u r  many  design,  of  (1962)  Research  a r e made f o r f u t u r e  It financial  some  the  management  and t o a c e r t a i n  section  extension  t o Roger's  on t h e s u b s t i t u t i o n  The s h o r t c o m i n g s  data  l e a v e s one  farmers  should  less  could  non-peasant  "trickle"  like  questionnaire  collected  under  on  i s , the  i s evidence  of  on. A c c o r d i n g  efforts  5.3 I m p l i c a t i o n s f o r F u t u r e  of  group  farmers,  that  skills  of s c h o o l i n g , t h i s  o f i n n o v a t i o n would  farmers;  case,  effect  as t o what  progressive  adoption  management  of i n n o v a t i o n theory,  situations,  of  financial  that  on  the  only  experts skill  by in  tests  p r o p e r t i e s , that  e t . a l . , 1971). In needs  to  be  100  administered stable  indication  accurate the  test  should  the  and test  with of  the of  was  "real  administered  performance  ability".  only once. For  recall  order  to  Educational  1966). In t h i s  questions  allow  skills  the  tests  be  reliable  proper  weights assigned  addition,  there  such  that only  farm  operator  in  the  farmers of  if  and  necessary  should  but  reliable  feed,  be  the  tests  or or  interviewed  and  deal  measure a low  level  aspects on  managers  to  reason  financial  that  future have  of a t e s t .  those or  actual  situations  makers  attend  where a t home o t h e r s may  by  of the  a  "take-home"  researcher  e x p e n s e s u s e d . Of  In  responding the  eliminate  decision  Instead  of  seem t o  ensure  included. This w i l l  operators  be  or  validity  to handle  restrictions  operators  take  a  Psychological  a c t u a l knowledge and  to d i f f e r e n t be  study,  and  fill type,  records  course,  this  requires  there are p a y - o f f s a s s o c i a t e d with  this  approach  estimates  There and  farm  reflect  questionnaire.  a l l receipts  time  should  non-farm  workshops  and  an  validity,  participants  management. These c o n s i d e r a t i o n s w i l l  where  and  study,  knowledge, w h i c h can  show  is a  and  In t h i s  i s a l s o q u e s t i o n a b l e . Most q u e s t i o n s  simple  score  knowledge(American P s y c h o l o g i c a l  for  Mannuals,  the o b t a i n e d  participants  their  Standards  l e a r n i n g . Few  in  of  whether  measure r e a l  Association, Test  t o see  indication  skills  test  twice  variable  are  i s a need input  f o r example, t h e  obtained. f o r b e t t e r i n f o r m a t i o n on  prices. price  For per  fertilizer, pound  would  output  chemicals  and  suffice.  If  101  this  is  items  bought and t h e e x p e n d i t u r e  would  not  allow  possible,  questions  on t h e q u a n t i t y of t h e s e  on them a r e  r e s e a r c h e r s t o compute p r i c e s  needed.  This  and a g g r e g a t e  as  required. Capital derive.  It  is  stock  estimates  rational  are always  to expect  a s s e t s h i g h l y b u t an a s s e s s m e n t  asset  to their  authority  markets  may  be  desirable. Some of t h e i t e m s  revised,  f o r example,  obtaining derived  expenditure the  output  The probably labor  could groups.  be  carried  Estimated  marginal  question  on h i r e d  rate  c o u l d be c a l c u l a t e d .  get  the  operator's measured The  rephrased  agricultural  elementary university,  or  Under  i n number  read  on  :  secondary  college  procedure  and  should  unskilled  family labor, in  order  to  a q u e s t i o n on o f f - f a r m  of d a y s would  years  of  suffice.  schooling  should  be  (1) " The h i g h e s t g r a d e a c h i e v e d a t school"  or i n s t i t u t e  i n s t a n c e i t may a l s o  aggregation  labor  i s n o t r e p o r t e d , t h e wage  labor, probably  question  to  products  m i x e s may be e x a m i n e d .  t h a t when an wage r a t e  employment  I f a method o f  o u t i n terms of  i n c l u d e t h e amount o f h i r e d . s k i l i e d  so  In t h i s  items.  t o be  i n f o r m a t i o n on an e n t e r p r i s e b a s i s i s  analysis  different  on t h e q u e s t i o n n a i r e need  the expenditure  homogeneous commodity for  to value  by an i n d e p e n d e n t  w i t h a knowledge o f l a n d and o t h e r more  farmers  difficult  be  that w i l l  and  (2)  "Years  of t e c h n o l o g y  feasible  to  attended".  consider  attach different  of  an  weights t o  1 02  secondary  school  institute  education  training.  quantitative  versus  As  models  university,  regards  are  college  methodology,  suggested  or  three  f o r c o n s i d e r a t i o n and  these are d i s c u s s e d below. Share information directly.  equations,  than The  restrictions  the  example,  profit  approach  and  for  provide  function  allows  for  when  estimated  more  g i v e s more i n f o r m a t i o n on  more  structural  i n p u t and  output  responses. The be  c o n c e p t u a l model u s e d  considered within a benefit  has  attempted  course  on  to f i n d  what that  they  farmers  e x t e n s i o n knowledge t e n d s  course the  may  be  taken  obtained ratio.  of  into  with  this  The be  consumer  benefits  agricultural producer  Two  i s the  distributional  perhaps  evaluated and  extension  through  of what  however do will  inpact  p e r i o d of  One  is  internal effect  through costs.  rate  of  t o show  of  The  of what  of  the  time  with  can  the be  return. may  producer  benefits affect  time  benefit-cost  the c o u r s e  assessing  ultimately  implementation  the  not  apply  i s l e a r n e d from  measures of b e n e f i t  procedure.  A n o t h e r measure  study  training  i s evidence  expected  a certain  adoption  account.  also  t o become o b s o l e t e w i t h  the  d i s c o u n t e d over  probability  course  Thus,  the  the c o u r s e  there  may  This  of  results  attended  l e a r n e d . In a d d i t i o n ,  (Sim e t . a l . , 1980).  impact  income. The who  study  framework.  the expected  p r o d u c t i o n and  examine whether  cost  in this  of  consumer  is learnt  from  also and any and the  103  extension. may  reduce  industry  There  demand  perfect  to  and r e d u c e  estimate  the  consideration  skills at  price.  In an e x - p o s t  and Hayami's  and  (1975)  involves  the  increase the market  consumers'  Another  return  and,  competition,  Akino  for this  management  production  following  sense,  producers'  approach. examining  the  c o u r s e . F o l l o w i n g Duncan's(1972) e v a l u a t i o n  to  research  improvements  for  of  i n the supply curve.  possible  increase  costs  under  is a shift  is  i n the f i n a n c i a l  o f a good p r o d u c e d  surpluses  of  marginal  level  quantity  it  Improvements  in  in  financial  productivity,  then  pasture management  there w i l l  improvement,  if  are  to  be a demand  t h e c o u r s e . The e s t i m a t e d b e n e f i t s may  the c o s t s of the c o u r s e  by means o f t h e  return,  generate  necessary  to  a  expected  function  be compared  internal  return  to  with  rate  of  the course  expendi t u r e s . Another approach changes  it in  predicted. are  likely  study to  followed, the  This  study  distinguishing current  that  ex-post  are  upon  which  training  evaluated  is  i s the  the  have  future  which  is  farmers  learned.  This  f u t u r e r e s e a r c h e r s would be a b l e evaluation of  in financial  from  ex-ante  the l i k e l i h o o d of  which  they  between p e r f o r m a n c e  who d i d n o t . In a d d i t i o n , study  there  study  has no way o f t e l l i n g  h o p e s , however, t h a t an  of t h i s  when  conditions  t o adopt  conduct  the  shortcoming  this  those  project who  management  the r e s u l t s a private  of  obtained  by  attended  versus  those  from  this  p o i n t o f v i e w , and y e t  1 04  the  funds  public. the  to  suppport  A more c o m p l e t e  project's social Finally,  new test  approach score  with  other  avoids done  the  c o s t and this  i s u s e d . 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" M a n a g e r i a l A b i l i t y i n S m a l l - F a r m P r o d u c t i o n : An A n a l y s i s o f M a i z e Y i e l d s i n t h e V i h i g a D i v i s i o n o f Kenya," Ph.D. d i s s e r t a t i o n , C o l u m b i a U n i v e r s i t y , 1973. O a k l e y , P. "A C r i t i c a l Review o f t h e C o f f e e E x t e n s i o n S e r v i c e o f t h e F e d e r a c i o n N a t i o n a l de C a f e t e r o s de C o l u m b i a . " A g r i c u l t u r a l E x t e n s i o n and R u r a l D e v e l o p m e n t C e n t r e , U n i v e r s i t y of R e a d i n g , May, 1981. O j o k o , S. 0. "An A s s e s s m e n t o f t h e A g r i c u l t u r a l E x t e n s i o n S e r v i c e Program i n R i v e r s S t a t e o f N i g e r i a , " Ph.D.dissertation, Pennsylvania State U n i v e r s i t y , 1979. O p a r e , K. D. "The R o l e  of A d u l t  Education  i n the  109  A d o p t i o n of I n n o v a t i o n s by Cocoa G r o w e r s i n Ghana," Ph.D. d i s s e r t a t i o n , U n i v e r s i t y of B r i t i s h Columbia, 1976. Opeke, R. O. Service," Columbia,  " E m p i r i c a l S t u d y of A g r i c u l t u r a l E x t e n s i o n Ph.D. d i s s e r t a t i o n , U n i v e r s i t y of B r i t i s h 1977.  P e t z e l , E. "The R o l e of E d u c a t i o n i n Dynamics S u p p l y , " A m e r i c a n J o u r n a l of A g r i c u l t u r a l E c o n o m i c s , 6 0 ( A u q u s t 1978), 445-451.  of  P h i p p s , L. J . S u c c e s s f u l P r a c t i c e s i n A d u l t E d u c a t i o n . I l l i n o i s : I n t e r s t a t e P r i n t e r s and P u b l i s h e r s , 1954. Poelman, G. "An A t t e m p t t o D e t e r m i n e i f R e l a t i o n s h i p E x i s t s between a F a r m e r ' s S o c i a l C h a r a c t e r i s t i c s and F i n a n c i a l Management L e v e l , " B. Sc. T h e s i s , U n i v e r s i t y of B r i t i s h C o l u m b i a , 1981. S c h u l t z , T. W. "The V a l u e of the A b i l i t y t o D e a l w i t h D i s e q u i 1 i b r i a , " J o u r n a l of Economic L i t e r a t u r e , 13(September 1975), 827-846. S c h u l t z , T. W. " C a p i t a l F o r m a t i o n i n E d u c a t i o n , " J o u r n a l of P o l i t i c a l Economy , 68(December 1960), 57 1 -83 . S c o t t , H. A. "Notes on F i n a n c i a l Management f o r A g r i c u l t u r a l P r o d u c e r s . " B r i t i s h Columbia F i n a n c i a l Management P r o j e c t R e f e r e n c e N o t e s C o u r s e I , ( J u l y 1981), 2-6. Sim, R. J . R. and R i c h a r d G a r d n e r . "A Review of R e s e a r c h and E x t e n s i o n E v a l u a t i o n i n A g r i c u l t u r e , " R e s e a r c h and E x t e n s i o n P r o d u c t i v i t y i n A g r i c u l t u r e , ed. A. A. A r a j i , 1-54. Moscow: U n i v e r s i t y of Idaho, 1980. S m i t h , M. F. Extension  " P u b l i c a t i o n s Have an , May/June, 1982.  Impact," J o u r n a l  of  Solow, R. M. " T e c h n i c a l Change and the A g g r e g a t e P r o d u c t i o n F u n c t i o n , " Review of E c o n o m i c s and S t a t i s t i c s , " 3 9 ( A u g u s t 1957), 312-320. Uwakah, C. T. " C r o s s - C u l t u r a l D i f f u s i o n of A d u l t E d u c a t i o n : The R o l e of A g r i c u l t u r a l E x t e n s i o n S t a f f i n ECS N i g e r i a , " Ph.D. dissertation, University of B r i t i s h C o l u m b i a , 1972. W e l c h , F. " E d u c a t i o n P o l i t i c a l Economy 35-59.  in Production," J o u r n a l of , 7 8 ( J a n u a r y / F e b r u a r y 1970),  11 0  W h i t e , F. and J o s e p h H a v l i c e k and D a n i e l O t t o . " A g r i c u l t u r a l R e s e a r c h and E x t e n s i o n I n v e s t m e n t Needs and Growth i n A g r i c u l t u r a l P r o d u c t i o n , " R e s e a r c h and E x t e n s i o n P r o d u c t i v i t y in Agriculture, ed. A. A. A r a j i , 431-465. Moscow: U n i v e r s i t y of Idaho, 1980. Young, R. E. and C. J . C u m i n g h a m . " E x t e n s i o n O u t p u t M e a s u r e s as I d e n t i f i e d by E x t e n s i o n C l i e n t e l e , " C o o p e r a t i v e E x t e n s i o n S e r v i c e , ( 1 9 7 7 ) , 19-20.  APPENDIX Calculation  of  the  A  F-statistics  for  the  Chow T e s t  11 2  C a l c u l a t ions The s t a n d a r d e r r o r of e s t i m a t e f o r 1980 and 1981 samples are 0.94932 and 0.80430 respectively. The u n r e s t r i c t e d r e s i d u a l sum o f s q u a r e s f o r 1980 d a t a e q u a l s 1 4  (0.94934)(0.94934)20  =  18.09  This has 20 degrees of freedom. For 1981 u n r e s t r i c t e d r e s i d u a l sum o f s q u a r e s e q u a l s (0.80430)(0.80430)41  sample  the  = 26.52  T h i s has 41 d e g r e e s of f r e e d o m . The sum of t h e u n r e s t r i c t e d r e s i d u a l sum o f s q u a r e s of b o t h y e a r s adds to 44.61. The s t a n d a r d e r r o r of e s t i m a t e of t h e p o o l e d sample e q u a l s (0.85502)(0.85502)67 This  has  67 d e g r e e s of  = 48.98.  freedom.  The sum of the unrestricted r e s i d u a l summ of s q u a r e s o f b o t h y e a r s has d e g r e e s of fredom e q u a l t o (n,  - k - 1) +  There are. k + 1 l i n e a r F  ' The 1980 respect i v e l y .  (n  2  - k  restrictions.  = [(48.98-44.61)/7] / = 0.82  and  1981  s a m p l e s have  -1) Hence, [44.61/59]  26 and  47  observations  11 3  APPENDIX B 1980  Data  Sample S t a t i s t i c s  i n 1981  Dollar  Value  T a b l e B.1: P r o f i t , C a p i t a l Flows and Wage R a t e - 1980 D a t a i n 1981 D o l l a r Value Variable  Mean  Sales  63914. 0  Profit  45878. 0  Capital  Flow  31019. 0  H i r e d Labor Wage Rate  40. 5  H i r e d Labor Expendi ture  3390. 0  Non-Labor Expendi ture  1 4647. 0  APPENDIX C Marginal  Return  per  Farm  1 16  Within  the  negative marginal marginal group,  value their  value  products.  products individual  relatively  small.  $1416. Most  of  $100,  $300-$9000 income g r o u p s i x farms have  The  (Table C.1). marginal range  $400. N e g a t i v e  have  Being  value  positive  a small  values  fall  within  are  i s $3  value products  values  income  products  of p o s i t i v e  t h e s e have m a r g i n a l  $200 and  Eleven  of  and size  -$6  and  -  $1 59.  T a b l e C.1: M a r g i n a l R e t u r n p e r Farm $300-$9000 G r o u p -75 68 3 38 -6 405 -158 -1 59  In cases in  in  the  three  $ 10000-$20000  the n e g a t i v e  the p o s i t i v e farmers  products  range  range  (Table  have  marginal  $1040, $1630 and value product  76 421 3 212 1 23 -17 11 5 278  $2490. E x c e p t  worth  of a b o u t  $698, t h e  $71  and  $83,  1416  income g r o u p t h e r e (-$659 and C.2).  Out  value f o r one  are  $2192). T w e l v e of  these  products case  as h i g h  with a  and  $157.  are  twelve as  marginal  r e m a n i n g have m a r g i n a l $102  two  value  11 7  T a b l e C.2: M a r g i n a l R e t u r n p e r Farm $1 0000-$20000 G r o u p 689 1 630 1040 147 1 02 2005 -659  In out  of  the  fourteen  205 -21 92 1 38 2490 83 1 57 71  $30000-$40000 have  ranging  from  -$969  marginal  value  products  income g r o u p ,  negative  to  -$254.  marginal The r e s t  five  value  farmers produts  o f t h e g r o u p has  as low as $279 and a s h i g h as $1633  (Table C.3).  T a b l e C.3: M a r g i n a l R e t u r n p e r Farm $30000-$40000 G r o u p -254 31 1 -969 483 279 739 -295  The of  thirteen  C.4)  The  $50000-$90000  with p o s i t i v e lowest  of  average  $3890  each.  $4223  $480. The r e s t products  income g r o u p has n i n e  marginal  these  $6494. T h r e e c a s e s and  1 592 -604 362 258 1 633 -852 878  value  values  t o about Four  products  (Table  i s $367 and t h e h i g h e s t $6000. Two  have v a l u e s  o f t h i s g r o u p has  c a s e s out  negative  : -$4223, -$359, -$3403 and -$37.  cases  show  between $367 and marginal  value  T a b l e C .4: M a r g i n a l R e t u r n per Farm $50000- $90000 G r o u p 480 6494 7735 7640 399 608  The of  large  products  3890 -4223 -359 -3403 -37 367  $ 100000-$400000  4223  income g r o u p , b e i n g a g r o u p  incomes, has t h e l a r g e s t (Table C.5). P o s i t i v e  $43832. N e g a t i v e  cases  i n d i v i d u a l marginal  cases  value  range between $553 and  a r e : -$14037, -$6485 and -$6622.  T a b l e C.5: M a r g i n a l R e t u r n p e r Farm $100000-$400000 G r o u p -9562 879 1 2849 5636 700 5636 700 27352  1411 4687 -14037 -6485 571 2 -6622 1 358 533  43832  APPENDIX D E x p e c t e d Change  in  Profit  due t o  Training  1 20  In  t h e $300-$9000 income g r o u p s i x f a r m e r s  n e g a t i v e changes changes the  scale,  profit The  vary  in  profit  between  ten farmers  in this  (Table  D.1).  of  negative  $484 and $3000. On t h e o t h e r end o f expect  positive  g r o u p o f t e n i s $10648  remaining  These  expect  cases  expect  profits. followed  profits  The h i g h e s t by  $6776.  between $484 and  $3872.  T a b l e D.1: E x p e c t e d Change i n P r o f i t Due t o T r a i n i n g Program $300-$9000 G r o u p 484  1 936  -1 936  0 2904 1 0648 -1 936 3872 .3872 968  2420 -3388 -1 452 -484 4356 -484  The of  expected,  highest are of  $ 10000-$20000 income g r o u p o n l y has one negative  expected  between  6676  profit(-$1936)  c h a n g e s a r e $7744 and  (Table $8228.  case  D.2). The  The  lowest  $968 and $1936. In between e x t r e m e s t h e r a n g e  these changes  i s $2904 and $4840.  121  T a b l e D.2: E x p e c t e d Change i n P r o f i t due t o T r a i n i n g Program $l0000-$20000 G r o u p 1 936 8228 4840 2904 -1936 0 2904  In income  group  income g r o u p twelve and  terms  of  group  compares  very  averages well  ( T a b l e D . 3 ) . The l a t t e r  whose e x p e c t e d  $4356.  0 968 7744 4356 968 4840 3388  changes  The o t h e r  the  with  t h e $30000-$40000  has s i x c a s e s  in profits  s i x expect  $ 10000-$20000  vary  profits  out  of  between $1452  between $5808 and  $9196.  T a b l e D.3: E x p e c t e d Change i n P r o f i t due t o T r a i n i n g Program $30000-$40000 G r o u p -3872 -91 96 -1452 3872 4356 2420 2904  The  1 452 91 96 6776 0 4656 5808 5808  $50000-$90000  comparable  only with  averages,  has  four  income  group,  which  is  t h e $300-$9000 g r o u p i n t e r m s o f g r o u p cases  ( T a b l e D . 4 ) . The r e m a i n i n g  with , with  expected  negative  the e x c e p t i o n  profits  o f two  1 22  cases with  $968 and $484, e x p e c t  profits  between $2904  and  $7260.  T a b l e D.4: E x p e c t e d Change i n P r o f i t due t o T r a i n i n g Program $50000-$90000 G r o u p - 11132 5808 5324 4356 968 -1 936  Finally,  the  $400000 has t h r e e c a s e s D.5).  These  positive  3388 484 -968 -968 5324 2904  highest  7260  income  of e x p e c t e d  g r o u p o f $100000-  n e g a t i v e changes  r a n g e between -$9680 and -$484.  c h a n g e s , on t h e o t h e r  expected,  hand, range between $968 and  $1936; $3872 and $4840; $5808 and $7740.  T a b l e D.5: E x p e c t e d Change i n P r o f i t due t o T r a i n i n g Program $100000-$400000 G r o u p 4840 -484 3872 1 936 1 936 -9680 7260  The  (Table  5808 -7260 5080 7740 2420 0 4356  APPENDIX E Financial  Management T r a i n i n g  Questionnaire  124  FINANCIAL  MANAGEMENT  TRAINING  QUESTIONNAIRE  Note t h a t these q u e s t i o n n a i r e s a r e c o m p l e t e l y c o n f i d e n t i a l . No names or a d d r e s s e s a r e r e q u i r e d and your response w i l l be anonymous. To p r e s e r v e this anonymity the e v a l u a t i o n i s b e i n g done by a t h i r d p a r t y . i  !  | I  19S2-33  Course  Year  125  Object i v e This  q u e s t i o n n a i r e i s being  from a l l p a r t i c i p a n t s so that the project  can  be  evaluated.  evaluation. F i r s t , assessment  of  r e v i s i o n of Secondly, evidence  the  the if  that  course  this  second end  and we  operation,  a l l o c a t i o n and  provide  is  test  continued  material, to  scores  to and  need some as  gross  and  and  presentation. t h e r e must be  farm  information  receipts,  your  improvement  be c o n t i n u e d ,  detailed  the  production To meet  about  your  asset l e v e l s ,  time  i n advance f o r c o m p l e t i n g  cooperation  of  f o r your  participants.  the l a s t benefit,  As  well,  the  questionnaires.  year's p a r t i c i p a n t s your your  has  cooperation response  will  will  help  the b a s i s f o r c o n t i n u i t y of the p r o j e c t .  Note: I f you feel  format,  aspects  expenditures.  the  future  obtain  two  training  i s r e a c h i n g a wide a r r a y of p r o d u c e r s .  improved the c o u r s e s help  are  to permit  project  such  Thank you as  There to  information  f i n a n c i a l management  i t i s having a p o s i t i v e e f f e c t on  incomes  Just  wish course  the  and  farm  we  used to c o l l e c t  w i s h to take  f r e e to do  t h i s q u e s t i o n n a i r e home to f i l l  so. P l e a s e b r i n g i t back with you  it  tomorrow.  in  126  Course  Location.  Farm  Tyoe  Date  LAND  Total  Deeded  Acres  Acres Cultivated  Land  Value.  $/Acre  Rented Land  Rental  a.u.m's Leased Grazed  Current  Land  BUILDINGS M a r k e t V a l u e Of A l l Farm B u i l d i n g s ( e x c l u d i n g v a l u e of farm house)  Current $  Value  Price $/Acre  127 LIVESTOCK  Number  Current  Females i n the breeding herd ( e . g . sows, d a i r y cows, b e e f cows, y e a r l i n g s i f backgrounding)  $  3ee  $  Hives  Others TOTAL  Value  $ VALUE  OF A L L  ?  LIVESTOCK  MARKETING QUOTA  Eaqs  Cases  3roilers  Pounds  c  Marketing  Daily Liters  Sharing A n n u a l Kg. Of B u t t e r f a t  128  MACHINERY  AND  EQUIPMENT  Current Motorized Tillage  Machinery  And S e e d i n g  Harvesting Spraying  $ Machinery  Machinery  $  Equipment  Fertilizing  Irrigation  $  $  Equipment  5  Equipment  $  Other S p e c i a l i z e d Equipment (e.g.milking equipment, honey e x t r a c t i n g equipment,etc.; please specify)  $  Shop  $  Tools  TOTAL VALUE OF A L L FARM AND EQUIPMENT  MACHINERY  $  Value  129  EXPENDITURES  193 1  FOR  C a s h Wages P a i d labor Taxes L e v i e d Prcoertv  To H i r e d  On Your  Agrigultural  Agricultural  F e e d P u r c h a s e s (Hay, G r a i n , M i x e d Feeds, C o n c e n t r a t e s , Supplements C a i f Feed, e t c . ) Breeding  Fees  Veterinary  And M e d i c i n e  Bedding Replacement Fuel  Animals  And O i l U s e d  Purposes  F o r Farm  (Tractors,  Trucks,  Combines, e t c . )  M a c h i n e R e n t a l Custom Or C o n t r a c t Work R e p a i r ' And M a i n t e n a n c e F o r Machinery, Buildings, Drainage And F e n c i n g C o m m e r c i a l F e r t i l i z e r And A g r i c u l t u r a l Chemicals( I n s e c t i c i d e s , Herbicides, Fungicides, Disinfectants Pesticides ) Crop Expenses Twine,  etc. )  Interest General  (Seed,  '  On O p e r a t i n g Supplies  Other Expenses Expenses )  Baler,  Capital  And O v e r h e a d  (e.g. Beekeeping  130  HIRED AGRICULTURAL  LABOR  T i m e Worked Hrs/Wk  Wks/Yr  Wage R a t e (Include A l l Benefits)  $/Day Skilled Labor  Farm $/Month  $/Day Casual Farm L a b o r $/Month  FAMILY  LABOR  Operator  Spouse  Children  15 y r s + Sex Age Y e a r s Of S c h o o l i n g Y e a r s Of E x p e r i e n c e M a n a g i n g A Farm  Under 15  131  FAMILY LABOR ( c o n t i n u e d !  Operator  Spouse  Children  15  Regular schedule i n 193!  yrs+  Under  hrs/wk  wks/yr  Summer Schedule i n 1981  hrs/wk  wks/yr  I Off-Farm Employment i f Appliccable  Number Of D a y s  Wage  ....$/hr  ....$/hr  . . . . 5/aio  . . ..$/mo  yes  yes  no  no  yes  yes  Rate  Agricultural Financial Extension Courses A t t e n d e d In The Past Three Years  Other  -—yes  no  — y e s  yes  no  yes  Courses - —no :  no  no  no  15  132  -13 3 3 f) <  0 •a cn Cfl 3 0  eg  0 •a  0 3 3 •» 3  O T  > a si • i — • OJ  C 1  a  3  fl CO eg •*  n  -w  <3 a 3  cfl  CB Cl 3 C 0 -i 1 1  < T 3  3  o>  n  eg  n  3  ca  3 3 T  a  1 a  —  *  eg ca  o  •  0  eg  •Q  n  3 .11  3  c Cfl  "j  3  3  C  •n  a ro  •  T 3 3  ca  •a <: z  3  ac  eg  < — •3 3 iG <J O — — (3  3 CT CO ca » CO  a ca  •Jt  0 3  -3 0  a.  3  T  0 3  0  T3 ca  ca  a  x  3* 3  -<  3  "!  3 n  O n .—, 0 3 —  3 3 3  -a1  —  3  0  3 "3 a 3  -  <  a a a 0 d ca  — 3  ~< % 3  1 30.3 O  3 CT Ti n 3 -. C ci 0 G —• — "S3 —• 3 3  c a a  < • 0 i 0  in  0  13 a c 0  ca  •  0  CO ro 3 a CO  01 3 m ."n  •3  -4  1  3 3  Ul  GROSS  RECEIPTS  ( c o n t I n u e d )  1979 Q u a n t i t y  LIVESTOCK POULTRY SOLO  f  ANO  mo  10(10 R e c e i p t s  %  Q u a n t i t y  R e c e i p t s  Quant  t  PRODUCTS  :  C a t t l o  ( I n c l u d i n g  (In 1 r y ) Hogs Sheep  and  Lambs  ( I n c l u d i n g B r o i l e r s Other  wool) oral  P o u l t r y  Eggs M i l k  And  Other  Cream  A g r i c u l t u r a l  P r o d u c t s G o v ' t .  (Honey,  e t c . )  L i v e s t o c k  P a y m e n t s ( s u c h as  Farm  INcome  A s s u r a n c e , TOTAL OF  o t c . )  VALUE  AGRICULTURAL  PRODUCTS  SOLD  -  1ty  t Reca  Ipts  APPENDIX F ill  Questions  135  S K I L L QUESTIONS  Course:  1.  Location:  For your k i n d o f farm b u s i n e s s ( ) which d o l l a r f i g u r e r e p r e s e n t s the debt p e r u n i t c l o s e s t to t h a t which your b u s i n e s s c o u l d h a n d l e : a)  a t 12% i n t e r e s t ? $400  $500  $2,000 b)  P l e a s e i n d i c a t e your answer w i t h a check mark. $600  $3,000  a t 22% i n t e r e s t ?  $700 $5,000  $1,000 $7,000  $1,500  ;  Give your answer i n approximate  dollars.  $ 2.  3.  4.  5.  A l a r g e r - t h a n - n e c e s s a r y investment i n machinery and f a c i l i t i e s r a i s e s c o s t s because: P l e a s e i n d i c a t e w i t h a check mark which s t a t e m e n t ( s ) a p p l y . a)  maintenance  c o s t s a r e lower  b)  i n t e r e s t c o s t s w i l l be h i g h e r  c)  d e p r e c i a t i o n allowances w i l l be h i g h e r  Which o f the f o l l o w i n g b u d g e t ( s ) are n o r m a l l y used t o determine t h e b r e a k even c o s t per u n i t o f s a l e a b l e product? P l e a s e i n d i c a t e your answer(s) w i t h a check mark. a)  n e t worth  b)  cost of production  c)  cash flow  d)  p a r t i a l budget  e)  income and expense  Which o f the f o l l o w i n g f i n a n c i a l statements r e v e a l t h e t r u e p r o f i t o r l o s s from the farm o p e r a t i o n ? P l e a s e i n d i c a t e your answer w i t h a check mark. a)  Cash flow  b)  Tax statement o f cash income and expense  c)  A c c r u a l type income and expense statement  .  "  ______  For t a x purposes, which type o f income and expense statement do you f e e l would be most advantageous f o r you to complete? P l e a s e i n d i c a t e your answer w i t h a check mark. a)  A c c r u a l type  b)  Cash type  136  6.  Which o f the f o l l o w i n g budgets would y o u use to determine your needs f o r an o p e r a t i n g l o a n ? Please i n d i c a t e : y o u r answer w i t h a check mark. a)  P a r t i a l budget  b)  Loan worksheet  c)  Income and expanse budget  d)  Cash flow budget  TAX PLANNING QUIZ In t h e h i g h e s t t a x b r a c k e t , t h e percentage marginal t a x r a t e f o r an i n d i v i d u a l i s o v e r 50%. True  False  Undecided  A f a n n e r bought l a n d f o r $100,000 i n 1973 and s o l d i t i n 1980 f o r $200,000 w i t h a c a p i t a l g a i n o f $100,000. Is t h e taxable c a p i t a l g a i n : ( c i r c l e one answer) (a)  $100,000  (b) $50,000  (c) $0  (d) $200,000  (e) Don't Know  Is a w i l l which i s n o t p r o p e r l y witnessed v a l i d i n B r i t i s h Columbia? Yes  No  Undecided  Recaptured c a p i t a l c o s t allowance i s : f u l l y taxable 5.  h a l f taxable  '  not taxable  Which o f the f o l l o w i n g types o f a s s e t s can be r o l l e d over t o a c h i l d a farmer who i s a c t i v e l y engaged i n far_dng? Farm land  Yes  No  Farm machinery  Yes  No  Yes  No  "  Shares i n a farm corporation  Are d e p r e c i a t i o n and c a p i t a l c o s t a l l o v a n c e the sane thing?  7.  Yes No Uncertain Do you have to t a k e the f u l l amount o f c a p i t a l c o s t allowance a l l o w e d each y e a r ? Yes  No  Don't Know  from  

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