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Farm‐specific Adjustment Costs in Dutch Pig Farming
Author(s) -
Gardebroek Cornelis,
Lansink Alfons G.J.M. Oude
Publication year - 2004
Publication title -
journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.157
H-Index - 61
eISSN - 1477-9552
pISSN - 0021-857X
DOI - 10.1111/j.1477-9552.2004.tb00076.x
Subject(s) - tobit model , economics , econometrics , shadow price , production (economics) , agriculture , investment (military) , jump , sample (material) , agricultural science , microeconomics , mathematics , environmental science , mathematical optimization , ecology , chemistry , physics , chromatography , quantum mechanics , politics , political science , law , biology
This paper develops a dynamic model of investment under rational expectations, assuming farm‐specific production technologies and adjustment cost structures. The model distinguishes regimes of negative, zero and positive investments and maintains that it is optimal for a farmer not to invest for a range of shadow prices, depending on thresholds for positive and negative investments. The model is applied to a rotating sample of Dutch pig farms over the period 1980–1996. Farm‐specific parameters of the adjustment cost function and production technology are obtained using Generalised Maximum Entropy estimation. Cluster analysis using the farm‐specific adjustment cost parameters indicates that five groups of farms with distinct adjustment cost structures can be identified. A tobit regression analysis is used to explain the impact of different socio‐economic factors on the size of the threshold between positive and negative investments.