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Investment and Abandonment Behavior of Rural Households: An Empirical Investigation
Author(s) -
Hill Ruth Vargas
Publication year - 2010
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1093/ajae/aaq055
Subject(s) - abandonment (legal) , economics , market liquidity , investment (military) , volatility (finance) , stock (firearms) , order (exchange) , investment decisions , monetary economics , microeconomics , financial economics , finance , production (economics) , geography , archaeology , politics , political science , law
This article uses models of irreversible investment under uncertainty to examine the investment and abandonment behavior of poor rural households. It considers the decision of Ugandan coffee‐farming households to invest in or abandon coffee trees. The observed levels of investment and abandonment are found to be consistent with models of investment that allow for irreversibility, uncertainty, fixed costs, and liquidity constraints. The findings highlight the importance of addressing volatility, irreversibility, fixed costs, and liquidity constraints in order to increase households’ responsiveness to changes in the fundamentals and to enable households to recover from shocks to their capital stock.