Journal
AMERICAN JOURNAL OF AGRICULTURAL ECONOMICS
Volume 88, Issue 2, Pages 351-364Publisher
WILEY
DOI: 10.1111/j.1467-8276.2006.00863.x
Keywords
credit constraint; profit function; proportional distance function
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This empirical application investigates the eventual presence of credit constraints using a panel of French farmers. The credit-constrained profit maximization model proposed by Fare, Grosskopf, and Lee is extended in three ways. First, we rephrase the model in terms of directional distance functions to allow duality with the profit function. Second, we model credit constraints in the short-run and investment constraints in the long-run using short- and long-run profit functions. Third, we lag the expenditure constraint one year to account for the separation between planning and production. We find empirical evidence of credit and investment constraints. Financially unconstrained farmers are larger, perform better, and seem to benefit from a virtuous circle where access to financial markets allows better productive choices.
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