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Investment rigidity and policy measures

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Author Info
Teresa Serra
Spiro Stefanou
José M. Gil
Allen Featherstone

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Abstract

This paper assesses the impacts of decoupled government transfers on production decisions of a sample of Kansas farms. Our empirical analysis is based on a reduced-form application of the dual model of investment under uncertainty developed by Sckokai, which is extended to a consideration of irregularities in the capital stock adjustment cost function. To do so we adopt the threshold regression methods proposed by Hansen. The econometric results support the existence of three regimes characterised by different economic behaviour. Our analysis suggests that in a dynamic setting that allows for irregularities in the capital adjustment cost function, decoupled transfers can have a powerful influence on production decisions. The dynamics of the stock of capital cause this influence to grow over time. Oxford University Press and Foundation for the European Review of Agricultural Economics 2009; all rights reserved. For permissions, please email journals.permissions@oxfordjournals.org, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/erae/jbp010
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Publisher Info
Article provided by Oxford University Press for the Foundation for the European Review of Agricultural Economics in its journal European Review of Agricultural Economics.

Volume (Year): 36 (2009)
Issue (Month): 1 (March)
Pages: 103-120
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Handle: RePEc:oup:erevae:v:36:y:2009:i:1:p:103-120

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  1. Pietola, Kyosti S & Myers, Robert J, 2000. " Investment under Uncertainty and Dynamic Adjustment in the Finnish Pork Industry," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 82(4), pages 956-67, November. [Downloadable!] (restricted)
  2. Hennessy, David A., 1998. "The Production Effects of Agricultural Income Support Policies under Uncertainty," Staff General Research Papers 1207, Iowa State University, Department of Economics.
  3. Teresa Serra & David Zilberman & Barry K. Goodwin & Keijo Hyvonen, 2005. "Replacement of Agricultural Price Supports by Area Payments in the European Union and the Effects on Pesticide Use," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 87(4), pages 870-884, November. [Downloadable!] (restricted)
  4. Rothschild, Michael, 1971. "On the Cost of Adjustment," The Quarterly Journal of Economics, MIT Press, vol. 85(4), pages 605-22, November. [Downloadable!] (restricted)
  5. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-30, March. [Downloadable!] (restricted)
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  6. Brenda L. Boetel & Ruben Hoffmann & Donald J. Liu, 2007. "Estimating Investment Rigidity within a Threshold Regression Framework: The Case of U.S. Hog Production Sector," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 89(1), pages 36-51, 02. [Downloadable!] (restricted)
  7. Epstein, Larry G & Denny, Michael G S, 1983. "The Multivariate Flexible Accelerator Model: Its Empirical Restrictions and an Application to U.S. Manufacturing," Econometrica, Econometric Society, vol. 51(3), pages 647-74, May. [Downloadable!] (restricted)
  8. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December. [Downloadable!] (restricted)
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  9. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March. [Downloadable!] (restricted)
  10. Gardner, Bruce L, 1992. "Changing Economic Perspectives on the Farm Problem," Journal of Economic Literature, American Economic Association, vol. 30(1), pages 62-101, March. [Downloadable!] (restricted)
  11. McLaren, Keith R & Cooper, Russel J, 1980. "Intertemporal Duality: Application to the Theory of the Firm," Econometrica, Econometric Society, vol. 48(7), pages 1755-62, November. [Downloadable!] (restricted)
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