Drivers of Agricultural Physical Capital Development: Theoretical Framework and Hypotheses
AbstractThis paper aims to identify drivers of physical capital adjustments in agriculture. It begins with a review of some of the most important theories and modelling approaches regarding firms’ adjustments of physical capital, ranging from output-based models to more recent approaches that consider irreversibility and uncertainty. Thereafter, it is suggested that determinants of physical capital adjustments in agriculture can be divided into three main groups, namely drivers related to: i)expected (risk-adjusted) profit, ii) expected societal benefits and costs and iii) expected private nonpecuniary benefits and costs. The discussion that follows focuses on the determinants belonging to the first group and covers aspects related to product market conditions, technological conditions, financial conditions and the role of firm structure and organization. Furthermore, the role of subjective beliefs is emphasized. The main part of this paper is concerned with the demand side of the physical capitalmarket and one section also briefly discusses some aspects related to supply of farm assets.
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Bibliographic InfoPaper provided by Centre for European Policy Studies in its series Factor Markets Working Papers with number 122.
Length: 26 pages
Date of creation: Feb 2012
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