Farm‐level nonparametric analysis of cost‐minimization and profit‐maximization behavior

Abstract This study investigates non‐parametrically the optimizing behavior of a sample of 289 Kansas farms under profit‐maximization and cost‐minimization hypotheses. The study uses both deterministic and stochastic non‐parametric tests. The deterministic results do not support strict adherence to either optimization hypothesis. The stochastic tests suggest that all 289 farms fail the profit‐maximization hypothesis, whereas 171 farms failed the cost‐minimization hypothesis. Allowing for non‐regressive technical change docs not alter the basic results; 276 farms violate the profit‐maximization hypothesis and 138 violate the cost‐minimization hypothesis. The evidence against cost‐minimization behavior seems to be far less substantial than that against profit‐maximization behavior.