Investment patterns in Dutch glasshouse horticulture

N. Goncharova

Research output: Thesisinternal PhD, WU


Keywords: investment, uncertainty, investment spikes, entry, exit, duration model, GMM dynamic panel data estimator, Negative Binomial model, Heckman selection model, moving window ARIMA, Principal Component analysis, horticulture

This thesis focuses on the analysis of investment decision-making in order to better understand the variables that influence a firm's profit-maximizing strategy. The goal of a firm is to continue to exist, which can be achieved through the maximization of profit. Thus, the investment decision is considered as a realization of the firm's profit-maximizing objective.

To understand the investment decision, investments in fixed capital in Dutch glasshouse horticulture were studied. Because an investment decision is dynamic by nature, investment patterns were analysed during the period 1975-1999, thereby providing a longer term overview. The salient characteristic of Dutch glasshouse horticulture firms is that they remain small-scale family firms with respect to labour and land, but are highly capital-intensive. Moreover, in recent decades, the sector has experienced many transformations in the fields of evolution and adaptation to new technologies, consumer preferences, and market and environmental requirements. This makes the Dutch glasshouse horticulture sector an attractive case for studying investment patterns. This is done by considering an investment decision as having three components: decisions about participation, about level, and about time. These components are a tangible part of investment decision-making; they reflect the latent factors of: investment thresholds, adjustment costs, irreversibility, and risk and uncertainty, all of which predetermine investments.

Results from this research show the relevance of separating the participation and level decisions since the set of significant variables differ (e.g. energy- and land prices are not significant for the level decision), and some of the variables exhibited contrasting signs (e.g. debts, revenue, labour cost). The impact of thresholds is tested on different types of entry and exit, which are considered as investment or disinvestment decisions. The raising of a threshold discourages firms from action; they prefer to delay any decision that can be related to the irreversibility of an investment. The results of this study do not provide strong support for the Real Option theory, which postulates that the effect of the uncertainty can be observed through the changes in investment threshold. While the model based onMarshalliantrigger points, which suggests the direct impact of the sector-characterizing variables (such as expectation of output prices, interest rate and uncertainty), explains the participation investment decision better.

A phenomenon that has not been studied in any depth is the effect of uncertainty on investment, which is considered in many studies as ambiguous. This study argues that risk and uncertainty should be distinguished from each other. The estimation leads to the conclusion concerning the difference in their effects on the level of investment, which sometimes contrast with each other. Moreover, the asymmetry in the effect of uncertainty is confirmed.

The timing of investment addresses the phenomenon of lumpy and intermittent patterns of investment, as estimated by a duration model. The timing of investments can be explained by the irreversibility of investment, with the lumpiness suggesting the fixed component in adjustment costs. A 6-year investment cycle was revealed at firm level and confirmed at average level. This implies that new policy instruments for increasing the adoption of new technologies will not necessarily lead to an immediate increase in investments, but will depend on, amongst others, factors associated with the degree of vintage of the installed technologies.
Original languageEnglish
QualificationDoctor of Philosophy
Awarding Institution
  • Wageningen University
  • Oskam, Arie, Promotor
Award date12 Jun 2007
Place of Publication[S.l.]
Print ISBNs9789085046684
Publication statusPublished - 2007


  • investment
  • decision making
  • uncertainty
  • horticulture
  • greenhouses
  • netherlands
  • crop enterprises
  • market gardens
  • duration
  • farm closures
  • econometric models

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