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Investment and Abandonment Behavior of Rural Households: An Empirical Investigation

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  • Ruth Vargas Hill

Abstract

This article uses models of irreversible investment under uncertainty to examine the investment and abandonment behavior of poor rural households. It considers the decision of Ugandan coffee-farming households to invest in or abandon coffee trees. The observed levels of investment and abandonment are found to be consistent with models of investment that allow for irreversibility, uncertainty, fixed costs, and liquidity constraints. The findings highlight the importance of addressing volatility, irreversibility, fixed costs, and liquidity constraints in order to increase households' responsiveness to changes in the fundamentals and to enable households to recover from shocks to their capital stock. Copyright 2010, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/ajae/aaq055
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Bibliographic Info

Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 92 (2010)
Issue (Month): 4 ()
Pages: 1065-1086

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Handle: RePEc:oup:ajagec:v:92:y:2010:i:4:p:1065-1086

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Cited by:
  1. Stephan Klasen & Jan Priebe & Robert Rudolf, 2010. "Cash Crop Choice and Income Dynamics in Rural Areas: Evidence for Post-Crisis Indonesia," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 33, Courant Research Centre PEG.
  2. Ihli, Hanna Julia & Musshoff, Oliver, 2013. "Understanding the Investment Behavior of Ugandan Smallholder Farmers: An Experimental Analysis," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150331, Agricultural and Applied Economics Association.
  3. Feil, Jan-Henning & Musshoff, Oliver, 2012. "Policy Impact Analysis on Investments and Disinvestments under Competition: A Real Options Approach," 2012 Conference (56th), February 7-10, 2012, Freemantle, Australia 124294, Australian Agricultural and Resource Economics Society.
  4. Xianlei Ma & Justus Wesseler & Nico Heerink & Futian Qu, 2013. "Land Tenure Reforms and Land Conservation Investments in China ¨C What Does Real Option Value Theory Tell Us?," Review of Economics & Finance, Better Advances Press, Canada, vol. 3, pages 19-33, August.
  5. Rijkers, Bob & Söderbom, Måns, 2013. "The Effects of Risk and Shocks on Non-Farm Enterprise Development in Rural Ethiopia," World Development, Elsevier, vol. 45(C), pages 119-136.
  6. Ihli, Hanna Julia & Musshoff, Oliver, 2013. "Investment Behavior of Ugandan Smallholder Farmers: An Experimental Analysis," Discussion Papers 154775, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.

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