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Investment, credit constraints and public policy in a neoclassical adjustment cost framework
[Investitionen, Kreditrationierung und Agrarpolitik in einem dynamischen neoklassischen Modell mit Anpassungskosten]

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  • Čechu­ra, Lukas

Abstract

This paper deals with the analysis of the impact of credit rationing on the farmer's economic equilibrium and the analysis of different policy scenarios in a derived neoclassical adjustment cost framework. The theoretical model is an optimal dynamic investment model, in which the upper bound on investment is introduced. The limit of the investment enables to analyse the consequence of the occurrence of credit rationing on farmer's capital accumulation, investment and supply. The method of optimal control is used to solve the optimization problem. The results show that the occurrence of credit rationing may significantly determine a farmer's economic equilibrium. Then the analysis of defined policy scenarios suggests that a loan guarantee efficiently solves the problem of the occurrence of external credit rationing. Interest rate subsidy may produce overinvestment and, thus, increases the probability of occurrence of the crowdingout effect, especially in the group of non-credit constraint farmers. Moreover, as far as the cost of agricultural policy is concerned, other agricultural support tools are less effective. The numerical application shows that the farmer's economic equilibrium is mostly sensitive to the initial bound on investment, the parameter of the cost function, the price, the level of technology and the discount rate. Finally, if the uncertainty is introduced, then the level of investment spending and capital accumulation is lower.

Suggested Citation

  • Čechu­ra, Lukas, 2008. "Investment, credit constraints and public policy in a neoclassical adjustment cost framework
    [Investitionen, Kreditrationierung und Agrarpolitik in einem dynamischen neoklassischen Modell mit Anpas
    ," IAMO Discussion Papers 115, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).
  • Handle: RePEc:zbw:iamodp:115
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    File URL: https://www.econstor.eu/bitstream/10419/28497/1/560546092.pdf
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    References listed on IDEAS

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    1. von Kalckreuth, Ulf, 2004. "Financial constraints for investors and the speed of adaptation: Are innovators special?," Discussion Paper Series 1: Economic Studies 2004,20, Deutsche Bundesbank.
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    Keywords

    Kreditrationierung; Investitionen; Kapital; EAGFL (Europäische Ausrichtungs-und Garantiefond für die Landwirtschaft); Dynamische Anpassungskosten und langfristiges Gleichgewicht. Credit constraint; investment; capital; SGAFF (Supporting and Guarantee Agricultural and Forestry Fund); Adjustment cost and farmer's economic equilibrium.;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy

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