Closing down the Farm: An Experimental Analysis of Disinvestment Timing
AbstractAgrarian structures are often characterized by some kind of economic inertia. It is particularly puzzling why unprofitable farms persist over time instead of being sold. In this paper we analyze the exit decision of farmers using the real options approach. The validity of the real options theory is assessed by means of laboratory experiments. Our results show that real options models are able to predict actual disinvestment decisions better than traditional investment theory. Nevertheless, the observed disinvestment reluctance was even more pronounced as predicted by theory. This finding suggests the inclusion of bounded rationality into normative disinvestment models.
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Bibliographic InfoPaper provided by European Association of Agricultural Economists in its series 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland with number 114375.
Date of creation: 2011
Date of revision:
Disinvestment; Real Options; Experimental Economics; Agricultural Finance; Farm Management; C91; D81; D92;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
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