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Does timing matter? A real options experiment to farmers' investment and disinvestment behaviours

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  • Hanna J. Ihli
  • Syster C. Maart-Noelck
  • Oliver Musshoff

Abstract

type="main" xml:id="ajar12028-abs-0001"> In this article, we analyse the (dis)investment behaviour of farmers in a within-subject designed experiment. We ascertain whether, and to what extent, the real options approach (ROA) and the classical investment theory can predict farmers' (dis)investment behaviour. We consider a problem of optimal stopping, stylising an option to (dis)invest in agricultural technology. Our results show that both theories do not explain exactly the observed (dis)investment behaviour. However, some evidence was found that the ROA predicted the decision behaviour of farmers better than the classical investment theory. Moreover, we found that farmers learn from repeated investment decisions and consider the value of waiting over time. Socio-demographic and farm-specific variables also affect the (dis)investment behaviour of farmers.

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  • Hanna J. Ihli & Syster C. Maart-Noelck & Oliver Musshoff, 2014. "Does timing matter? A real options experiment to farmers' investment and disinvestment behaviours," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 58(3), pages 430-452, July.
    • Handle: RePEc:bla:ajarec:v:58:y:2014:i:3:p:430-452
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    File URL: http://hdl.handle.net/10.1111/ajar.2014.58.issue-3
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    2. Ayenew, Habtamu Yesigat & Sauer, Johannes & Abate-Kassa, Getachew, 2016. "Cost of Risk Exposure, Farm Disinvestment and Adaptation to Climate Uncertainties: The Case of Arable Farms in the EU," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235595, Agricultural and Applied Economics Association.
    3. Lushi Isuf & Çera Gentjan & Murrja Arif & Ujkani Sead, 2023. "Linking Farmers’ Bargaining Power in Trade to their Plans for Future Economic Activities," South East European Journal of Economics and Business, Sciendo, vol. 18(2), pages 173-185, December.
    4. François J Dessart & Jesús Barreiro-Hurlé & René van Bavel, 2019. "Behavioural factors affecting the adoption of sustainable farming practices: a policy-oriented review," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 46(3), pages 417-471.
    5. Chen, Le & Rejesus, Roderick M. & Brown, Zachary S. & Boyer, Christopher M. & Larson, James A., 2020. "Adoption of Cover Crops under Uncertainty: A Real Options Method," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304391, Agricultural and Applied Economics Association.
    6. Luca Di Corato & Tsegaye Ginbo, 2020. "Climate change and coffee farm relocation in Ethiopia: a real-options approach," Working Papers 2020:02, Department of Economics, University of Venice "Ca' Foscari".
    7. Charles Sims & Sarah E. Null & Josue Medellin-Azuara & Augustina Odame, 2021. "Hurry Up Or Wait: Are Private Investments In Climate Change Adaptation Delayed?," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 12(04), pages 1-36, November.

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