Work

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

Year: 2013

Type: article

Abstract: 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.

Source: Australian Journal of Agricultural and Resource Economics

DOI: 10.1111/1467-8489.12028

Authors: Hanna J. Ihli, Syster C. Maart‐Noelck, Oliver Musshoff

Institution: University of Göttingen

Language: English

Topic: Capital Investment and Risk Analysis

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Zero hunger

Open Access status: bronze

Funder: Deutsche Forschungsgemeinschaft