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Farm Capital Investment and Deviations from the Optimal Path

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  • Theodoros Skevas
  • Feng Wu
  • Zhengfei Guan

Abstract

We identify farms’ optimal investment path in capital assets and compare it with their actual investment to assess the direction and extent of deviation from the optimal investment. A probit model is further used to investigate the determinants of the probability that a farmer over†or under†invests in capital assets. We use a panel dataset of Dutch dairy farms over the period 2003–2013, and find that most farms under†invest in capital assets during the study period. Although the number of farms that had over†invested in capital assets is relatively small, these farms account for the biggest share of total investment in capital assets. The probit results show that liquidity, agricultural support payments, age, land tenure and standard output size are important variables explaining the likelihood of over†and under†investment.

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  • Theodoros Skevas & Feng Wu & Zhengfei Guan, 2018. "Farm Capital Investment and Deviations from the Optimal Path," Journal of Agricultural Economics, Wiley Blackwell, vol. 69(2), pages 561-577, June.
    • Handle: RePEc:bla:jageco:v:69:y:2018:i:2:p:561-577
    DOI: 10.1111/1477-9552.12252
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    Cited by:

    1. Theodoros Skevas & Wyatt Thompson & Scott Brown & Victor E. Cabrera, 2021. "Milk Income over Feed Cost Margin, Margin Protection Program, and Farm Finances for a Sample of Wisconsin Dairies in 2000–2017," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(4), pages 1638-1657, December.
    2. Onegina, Viktoriya & Vitkovskyi, Yurii, 2020. "Інвестиції Та Земельна Реформа В Сільському Господарстві В Україні," Agricultural and Resource Economics: International Scientific E-Journal, Agricultural and Resource Economics: International Scientific E-Journal, vol. 6(4), December.
    3. Bradfield, Tracy & Butler, Robert & Dillon, Emma J. & Hennessy, Thia & Loughrey, Jason, 2023. "The impact of long-term land leases on farm investment: Evidence from the Irish dairy sector," Land Use Policy, Elsevier, vol. 126(C).
    4. Qian, Xiaoyan, 2021. "Production planning and equity investment decisions in agriculture with closed membership cooperatives," European Journal of Operational Research, Elsevier, vol. 294(2), pages 684-699.
    5. Hongyun Zheng & Wanglin Ma, 2021. "The role of resource reallocation in promoting total factor productivity growth: Insights from China’s agricultural sector," Review of Development Economics, Wiley Blackwell, vol. 25(4), pages 2350-2371, November.
    6. Theodoros Skevas & Ioannis Skevas & Victor E. Cabrera, 2021. "Examining the Relationship between Social Inefficiency and Financial Performance. Evidence from Wisconsin Dairy Farms," Sustainability, MDPI, vol. 13(7), pages 1-14, March.
    7. Shuai Qin & Zheying Han & Hong Chen & Haokun Wang & Cheng Guo, 2022. "High-Quality Development of Chinese Agriculture under Factor Misallocation," IJERPH, MDPI, vol. 19(16), pages 1-20, August.
    8. Shuai Qin & Hong Chen & Tuyen Thi Tran & Haokun Wang, 2022. "Analysis of the Spatial Effect of Capital Misallocation on Agricultural Output—Taking the Main Grain Producing Areas in Northeast China as an Example," Sustainability, MDPI, vol. 14(10), pages 1-17, May.

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