Empirical Application of Durable Resource Theory in the Investment/ Disinvestment of Farm Machinery

Abstract

This study empirically applies durable resource theory in the investment/disinvestment of farm machinery on a hypothetical farm in Northcentral Oklahoma. A key aspect of the durable replacement model used is the recognition of all cost and returns attributable to the durable. The effects of forecasted returns, repair costs, salvage values, farm size, tax considerations, and uncertainty on the optimal economic investment/disinvestment decision are examined.