Journal
EUROPEAN REVIEW OF AGRICULTURAL ECONOMICS
Volume 37, Issue 1, Pages 51-76Publisher
OXFORD UNIV PRESS
DOI: 10.1093/erae/jbp046
Keywords
irreversibility; uncertainty; q model; capital market imperfections; D81; D92; O12
Categories
Funding
- Deutsche Forschungsgemeinschaft (DFG)
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Low investment rates are a puzzling phenomenon particularly in transition economies with an urgent need for modernisation. The literature offers two alternative explanations: imperfect capital markets and investment reluctance due to real options effects. In this paper, we develop a generalised model that combines both aspects. The econometric implementation has the structure of a generalised Tobit model. Applying this model to German farm-level panel data, we show that ignoring real option effects may lead to erroneous conclusions in the context of empirical investment equations.
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