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The Asymmetric Response of Farmers to the Expected Change of Rubber Price: the Roles of Sunk Cost and Path Dependency

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  • Min, Shi
  • Wang, Xiaobing
  • Liu, Min
  • Jikun, Huang

Abstract

This study examines the impacts of sunk cost and path dependency on farmers' responses to the expected price change. A simple choice experiment was implemented to collect the responses of farmers to the hypothetical change in rubber price. The results show that near 73% of farmers choose to adjust their productive behaviors when rubber price is hypothesized to increase by 50%, while it is only about 55% when rubber price is hypothesized to increase by 50%. The responses of farmers to these two hypothetical changes in rubber price are significantly asymmetrical. The sunk cost and path dependency of rubber farming are proxied by the planting area of and experience in rubber farming, respectively. The estimation results of a bivariate probit model indicate that the higher sunk cost and longer path dependency of rubber farming significantly hinder farmers' probabilities to adjust their productive behaviors in the response to the two hypothetical changes in rubber price. The significant difference in the impacts of sunk cost and path dependency on the choice of response behaviors under the two hypothetical situations may help to explain the observed asymmetric response. The impacts of sunk cost and path dependency on the choice of specific productive adjusting behavior are heterogeneous. Acknowledgement : This study has been conducted in the framework of the Sino-German SURUMER Project , funded by the Bundesministerium f r Wissenschaft, Technologie und Forschung (BMBF), FKZ: 01LL0919. I also acknowledge the funding support from National Natural Sciences of China (71742002; 71673008) and China Postdoctoral Science Foundation (8201400850).
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  • Min, Shi & Wang, Xiaobing & Liu, Min & Jikun, Huang, 2018. "The Asymmetric Response of Farmers to the Expected Change of Rubber Price: the Roles of Sunk Cost and Path Dependency," 2018 Annual Meeting, August 5-7, Washington, D.C. 274122, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea18:274122
    DOI: 10.22004/ag.econ.274122
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    3. Ningan Yang & Yawen Ding & Shi Min & Junfei Bai, 2022. "Does rubber expansion hinder the migration of rural labor? Evidence from southwest China?," Review of Development Economics, Wiley Blackwell, vol. 26(2), pages 1108-1131, May.
    4. Jin, Shaoze & Min, Shi & Huang, Jikun & Waibel, Hermann, 2021. "Falling price induced diversification strategies and rural inequality: Evidence of smallholder rubber farmers," World Development, Elsevier, vol. 146(C).

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