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Investment reluctance: irreversibility or imperfect capital markets?

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  • Silke Hüttel
  • Oliver Mu�hoff
  • Martin Odening

Abstract

Low investment rates are a puzzling phenomenon particularly in transition economies with an urgent need for modernisation. The literature offers two alternative explanations: imperfect capital markets and investment reluctance due to real options effects. In this paper, we develop a generalised model that combines both aspects. The econometric implementation has the structure of a generalised Tobit model. Applying this model to German farm-level panel data, we show that ignoring real option effects may lead to erroneous conclusions in the context of empirical investment equations. Oxford University Press and Foundation for the European Review of Agricultural Economics 2010; all rights reserved. For permissions, please email journals.permissions@oxfordjournals.org, Oxford University Press.

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Bibliographic Info

Article provided by Foundation for the European Review of Agricultural Economics in its journal European Review of Agricultural Economics.

Volume (Year): 37 (2010)
Issue (Month): 1 (March)
Pages: 51-76

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Handle: RePEc:oup:erevae:v:37:y:2010:i:1:p:51-76

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Cited by:
  1. Moro, Daniele & Sckokai, Paolo, 2013. "The impact of decoupled payments on farm choices: Conceptual and methodological challenges," Food Policy, Elsevier, vol. 41(C), pages 28-38.
  2. Petrick, Martin & Kloss, Mathias, 2012. "Drivers of agricultural capital productivity in selected EU member states," Factor Markets Working Papers 137, Centre for European Policy Studies.
  3. Guastella, G. & Moro, D. & Sckokai, P. & Veneziani, M., 2013. "CAP Effects on Agricultural Investment Demand in Europe," Proceedings Issues, 2013: Productivity and Its Impacts on Global Trade, June 2-4, 2013. Seville, Spain 152256, International Agricultural Trade Research Consortium.
  4. Tubetov, Dulat & Musshoff, Oliver & Kellner, Ulla, 0. "Investments in Kazakhstani Dairy Farming: A Comparison of Classical Investment Theory and the Real Options Approach," Quarterly Journal of International Agriculture, Humboldt-Universität zu Berlin, vol. 51.
  5. Conor M. O'Toole & Carol Newman & Thia Hennessy, 2011. "The role of investment, fundamental Q and financing frictions in agricultural investment decisions: an analysis pre and post financial crisis," Working Papers 1101, Rural Economy and Development Programme,Teagasc.
  6. Jakob Vesterlund Olsen & Arne Henningsen, 2011. "Investment Utilisation, Adjustment Costs, and Technical Efficiency in Danish Pig Farms," IFRO Working Paper 2011/13, University of Copenhagen, Department of Food and Resource Economics.
  7. Sahrbacher, Christoph & Ostermeyer, Arlette & Sahrbacher, Amanda, 2013. "Simulation Results of AgriPoliS about Diminishing Capital Subsidies and Restrictions," Working Papers 157114, Factor Markets, Centre for European Policy Studies.
  8. Guastella, Giovanni & Moro, Daniele & Sckokai, Paolo & Veneziani, Mario, 2013. "Simulation Results on the Impact of Changes in the Main EU Policy Tools on Farm Investment Behaviour," Factor Markets Working Papers 168, Centre for European Policy Studies.
  9. Maart, Syster Christin & Musshoff, Oliver, 2011. "Optimal Timing of Farmland Investment - An Experimental Study on Farmers' Decision Behavior -," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103693, Agricultural and Applied Economics Association.
  10. Guastella, Giovanni & Veneziani, Mario & Sckokai, Paolo & Moro, Daniele, 2013. "Simulation Results on the Impact of Changes in the Main EU Policy Tools on Farm Investment Behaviour," Working Papers 157115, Factor Markets, Centre for European Policy Studies.
  11. Rizov, Marian & Pokrivcak, Jan & Ciaian, Pavel, 2013. "CAP Subsidies and the Productivity of EU Farms," Factor Markets Working Papers 148, Centre for European Policy Studies.
  12. O'Toole, Conor M. & Newman, Carol F. & Hennessy, Thia C., 2011. "The role of financing frictions in agricultural investment decisions: an analysis pre and post financial crisis," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114568, European Association of Agricultural Economists.
  13. Rizov, Marian & Pokrivcak, Jan & Ciaian, Pavel, 2012. "CAP subsidies and productivity of the EU farms," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 124970, International Association of Agricultural Economists.
  14. Huettel, Silke & Narayana, Rashmi & Odening, Martin, 2011. "Measuring dynamic efficiency under uncertainty," Structural Change in Agriculture/Strukturwandel im Agrarsektor (SiAg) Working Papers 129062, Humboldt University Berlin, Department of Agricultural Economics.
  15. Moro, Daniele & Sckokai, Paolo, 2011. "The impact of pillar I support on farm choices: conceptual and methodological challenges," 122nd Seminar, February 17-18, 2011, Ancona, Italy 99836, European Association of Agricultural Economists.
  16. Guastella,Giovanni & Moro, Daniele & Sckokai, Paolo & Veneziani, Mario, 2013. "Investment behaviour of EU arable crop farms in selected EU countries and the impact of policy reforms," Factor Markets Working Papers 154, Centre for European Policy Studies.
  17. Guastella, Giovanni & Moro, Daniele & Sckokai, Paolo & Veneziani, Mario, 2013. "Investment behaviour of EU arable crop farms in selected EU countries and the impact of policy reforms," Working Papers 152083, Factor Markets, Centre for European Policy Studies.

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