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Are Farmers Completely Rational Consumers and Do They Suffer from a Borrowing Constraint? The Dutch Case

  • Woldehanna, Tassew
  • Oskam, Arie J.
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    There is some confusion in the literature on the consumption behaviour of farmers. We try to clear up some of the issues surrounding this confusion by elaborating and testing a model. Euler equations have been derived from a constant relative risk aversion utility function for total consumption expenditure, household expenditure and other expenditure, which includes durable goods. According to a test of Euler equations, farm households are not simply optimising lifetime utility. Rather, these households follow simple consumption rules, strongly influenced by habit formation. In line with most of the literature, we find that farm households are not borrowing constrained in their consumption expenditures.

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    File URL: http://purl.umn.edu/24854
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    Paper provided by European Association of Agricultural Economists in its series 2002 International Congress, August 28-31, 2002, Zaragoza, Spain with number 24854.

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    Date of creation: 2002
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    Handle: RePEc:ags:eaae02:24854
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    1. Carroll, Christopher D, 1994. "How Does Future Income Affect Current Consumption?," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 111-47, February.
    2. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
    3. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
    4. Martin Browning & Annamaria Lusardi, 1995. "Household Saving: Micro Theories and Micro Facts," Department of Economics Working Papers 1995-02, McMaster University.
    5. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-86, September.
    6. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
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