Farm-specific adjustment costs in Dutch pig farming

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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.
Original languageEnglish
Pages (from-to)3-24
Number of pages21
JournalJournal of Agricultural Economics
Issue number1
Publication statusPublished - 2004


  • asymmetric adjustment
  • dynamic adjustment
  • investment
  • uncertainty
  • expectations
  • industry
  • model


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