Seminar in Applied Microeconomics presented by John Jones (Federal Reserve Bank of Richmond)

John Jones

Research Economist at Federal Reserve Bank of Richmond

John Bailey Jones joined the Research Department as a senior economist and research advisor in September 2016. Jones has served as a consultant to the Federal Reserve Bank of Richmond and the Federal Reserve Bank of Chicago. Before joining the Richmond Fed, he taught economics at the University of Albany, SUNY.

Abstract:
Using a rich panel of owner-operated New York dairy farms, we provide new evidence on entrepreneurial behavior. We formulate a dynamic model of farms facing uninsured risks and financial constraints. Farmers derive nonpecuniary benefits from operating their businesses. We estimate the model via simulated minimum distance, matching both production and financial data. We find that financial factors and nonpecuniary benefits are of first-order importance. Collateral constraints and liquidity restrictions inhibit borrowing and the accumulation of capital. The nonpecuniary benefits to farming are large and keep small, low-productivity farms in business. Although farmers are risk averse, eliminating uninsured production risk has only modest effects on capital and output.