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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.

Suggested Citation

  • Ruth Vargas Hill, 2010. "Investment and Abandonment Behavior of Rural Households: An Empirical Investigation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(4), pages 1065-1086.
    • Handle: RePEc:oup:ajagec:v:92:y:2010:i:4:p:1065-1086
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    File URL: http://hdl.handle.net/10.1093/ajae/aaq055
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    Citations

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    Cited by:

    1. Na Li & Richard J. Vyn & Ken McEwan, 2016. "To Invest or Sell? The Impacts of Ontario’s Greenbelt on Farm Exit and Investment Decisions," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 38(3), pages 389-412.
    2. Hengfei Song & Liangjie Xin & Xiubin Li & Xue Wang & Yufeng He & Wen Song, 2022. "Can Livestock Raising Alleviate Farmland Abandonment?—Evidence from China," Land, MDPI, vol. 11(8), pages 1-18, July.
    3. Feil, Jan-Henning & Musshoff, Oliver, 2013. "Investment, disinvestment and policy impact analysis in the dairy sector: a real options approach," Structural Change in Agriculture/Strukturwandel im Agrarsektor (SiAg) Working Papers 159229, Humboldt University Berlin, Department of Agricultural Economics.
    4. Chen, Qiu & Huang, Jikun & Mirzabaev, Alisher, 2022. "Does fuel price subsidy work? Household energy transition under imperfect labor market in rural China," Energy Economics, Elsevier, vol. 107(C).
    5. Lushi Isuf & Çera Gentjan & Murrja Arif & Ujkani Sead, 2023. "Linking Farmers’ Bargaining Power in Trade to their Plans for Future Economic Activities," South East European Journal of Economics and Business, Sciendo, vol. 18(2), pages 173-185, December.
    6. Abdul-Salam, Yakubu & Phimister, Euan, 2019. "Modelling the impact of market imperfections on farm household investment in stand-alone solar PV systems," World Development, Elsevier, vol. 116(C), pages 66-76.
    7. Ihli, Hanna Julia & Gassner, Anja & Musshoff, Oliver, 2018. "Experimental insights on the investment behavior of small-scale coffee farmers in central Uganda under risk and uncertainty," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 75(C), pages 31-44.
    8. Ihli, Hanna Julia & Musshoff, Oliver, 2013. "Investment Behavior of Ugandan Smallholder Farmers: An Experimental Analysis," GlobalFood Discussion Papers 154775, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    9. Hanna J. Ihli & Syster C. Maart-Noelck & Oliver Musshoff, 2014. "Does timing matter? A real options experiment to farmers' investment and disinvestment behaviours," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 58(3), pages 430-452, July.
    10. 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, Fremantle, Australia 124294, Australian Agricultural and Resource Economics Society.
    11. Syster C. Maart-Noelck & Oliver Musshoff, 2013. "Investing Today or Tomorrow? An Experimental Approach to Farmers’ Decision Behaviour," Journal of Agricultural Economics, Wiley Blackwell, vol. 64(2), pages 295-318, June.
    12. 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.
    13. 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.
    14. 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.

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