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Investment Behavior of Ugandan Smallholder Farmers: An Experimental Analysis

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  • Ihli, Hanna Julia
  • Musshoff, Oliver

Abstract

In this study, we experimentally analyze the investment behavior of smallholder farmers in Uganda. We consider a problem of optimal stopping, stylizing an option to invest in a project. We ascertain whether, and to what extent, the real options approach and the classical investment theory can predict farmers’ investment behaviors. We also examine differences in the investment behavior with respect to the presence of a price floor, which is often used to stimulate investments. Furthermore, we look at learning effects. Our results show that both theories do not exactly explain the observed investment behavior. However, our results suggest that real options models better predict the decision behavior of farmers than the classical investment theory. The presence of a price floor and learning from personal experience during the experiment do not significantly affect the investment behavior. However, we find that specific socio-demographic and socio-economic characteristics affect the investment behavior of farmers.

Suggested Citation

  • Ihli, Hanna Julia & Musshoff, Oliver, 2013. "Investment Behavior of Ugandan Smallholder Farmers: An Experimental Analysis," Discussion Papers 154775, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
  • Handle: RePEc:ags:gagfdp:154775
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    File URL: http://purl.umn.edu/154775
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    Cited by:

    1. Moser, Stefan & Mußhoff, Oliver, 2015. "Comparing the use of risk-influencing production inputs and experimentally measured risk attitude: Do decisions of Indonesian small-scale rubber farmers match?," EFForTS Discussion Paper Series 14, University of Goettingen, Collaborative Research Centre 990 "EFForTS, Ecological and Socioeconomic Functions of Tropical Lowland Rainforest Transformation Systems (Sumatra, Indonesia)".
    2. Cárcamo, Jorge & Cramon-Taubadel, Stephan von, 2016. "Assessing small-scale raspberry producers' risk and ambiguity preferences: Evidence from field-experiment data in rural Chile," DARE Discussion Papers 1610, Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE).
    3. Stefan Moser & Oliver Mußhoff, 2016. "Ex-ante Evaluation of Policy Measures: Effects of Reward and Punishment for Fertiliser Reduction in Palm Oil Production," Journal of Agricultural Economics, Wiley Blackwell, vol. 67(1), pages 84-104, February.

    More about this item

    Keywords

    experimental economics; investment; price floors; real options; Uganda; Farm Management; Institutional and Behavioral Economics; Political Economy; Risk and Uncertainty; C91; D03; D81; D92;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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