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The Capital Asset Pricing Model (CAPM) is used to estimate the cost of equity for each of 62 New York dairy farms that participated in a business analysis program from 1988 through 1997. The estimated betas were statistically less than one for all farms. Risk‐adjusted interest rates ranged from a high of 9.46 per cent to a low of 0.72 per cent, reflecting these low estimated betas.

Buy-sell arrangements for the death of a co-owner may be funded with life insurance. Although many factors may enter the decision of whether to fund the buy-sell with life insurance, the degree of tolerance to risk is a major factor. The purpose of this paper is to estimate the risk aversion necessary to make life insurance funding the preferred option.

The decision whether to use life insurance was modeled using the expected utility theorem under state-dependent utility. Aversion to risk was varied to determine at what risk aversion levels insurance was preferred. Analysis was done for difference ages and thus mortality risk and for difference levels of insurance markups.

Life insurance funding is preferred at relatively low amounts of risk aversion, especially if the surviving partner becomes more risk averse upon the co-owner's death. A lower percentage of life insurance would be used if insurance premiums are significantly above actuarially fair premiums.

Given currently available insurance rates, most closely held small businesses probably should fund their buy-sell arrangements activated upon death of a partner with life insurance. However, cash flow constraints may hinder insurance purchase and planning may be myopic in that more imminent strategy issues may be present that a future death.

Although the use of life insurance to fund buy-sell arrangements is typically suggested for the small closely held business, little economic or financial analysis has been completed to date.

A family member may work for the family business even though the direct financial benefits he or she may receive in the form of a salary may be lower than what could be earned working for a non-family business. The lower amount may be accepted because of benefits of association with the family business. This psychic non-pecuniary return has been called socioemotional wealth in the family business research literature. The purpose of this paper is to propose a method to estimate socioemotional wealth and apply that technique to a group of family dairy farms to estimate socioemotional wealth for those family farms.

A panel regression method was used to empirically allocate net farm income to the unpaid factors of equity, labor, and management provided by a family member in a family farm partnership. The estimated returns of labor plus management are compared to the market salary earned by farm managers who manage farms. The difference between the higher hired farm manager salary and what the family manager earns in the family farm from labor and management is an estimate of the non-pecuniary return the family member receives from managing the family farm as compared to managing the non-family farm.

Differences in managers’ salary working for the non-family farm and the implied family manager financial compensation estimates indicate that family business managers’ non-pecuniary return from managing the family farm had an implied economic value averaging $22,026 per year over 1999-2008. Assuming that the manager would be indifferent between working for the family farm or the non-family farm if the sum of pecuniary and non-pecuniary returns were the same, the non-pecuniary annual benefits of $22,026 accrues in the form of socioemotional wealth associated as a member in the family business.

Although the literature discusses how family members may accept a lower salary working for the family business than they could earn doing comparable work in a non-family business because of non-financial rewards they experience working for the family business, there have been no estimates of the value of this pecuniary benefit. The authors arrive at an estimate using a group of family dairy farm businesses that have multiple family managers.