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The impact of credit rationing on farmer's economic equilibrium

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  • L. Čechura

    (Department of Agricultural Economics, Faculty of Economics and Management, Czech University of Life Sciences, Prague, Czech Republic)

Abstract

The paper deals with the theoretical analysis of the impact of credit rationing on farmer's economic equilibrium. The analysis is carried out based on the derived dynamic optimization model, which is the dynamic investment model with adjustment costs. The credit rationing is introduced by imposing an upper limit on the control variable, which is in this case represented by the investment spending. Then, the optimal control is used to solve the optimization problem in the situation of both with and without credit constraints. Finally, the situations without and with credit rationing are compared. The results show that the occurrence of credit rationing or in general financial constraints significantly determines the capital accumulation and investment decisions of farmers and as a result their supply functions.

Suggested Citation

  • L. Čechura, 2009. "The impact of credit rationing on farmer's economic equilibrium," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 55(11), pages 541-549.
    • Handle: RePEc:caa:jnlage:v:55:y:2009:i:11:id:105-2009-agricecon
    DOI: 10.17221/105/2009-AGRICECON
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    References listed on IDEAS

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    1. L. Čechura, 2006. "The role of credit rationing in Czech agriculture - the case of large agricultural enterprises," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 52(10), pages 477-488.
    2. Steigum, Erling, Jr, 1983. "A Financial Theory of Investment Behavior," Econometrica, Econometric Society, vol. 51(3), pages 637-645, May.
    3. P. Froněk & L. Jelínek & T. Medonos, 2007. "The multicriterial evaluation of agricultural enterprises," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 53(3), pages 123-131.
    4. Schworm, William E, 1980. "Financial Constraints and Capital Accumulation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(3), pages 643-660, October.
    5. Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-233, March.
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