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European Review of Agricultural Economics Advance Access published online on April 9, 2009
European Review of Agricultural Economics, doi:10.1093/erae/jbp010
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© Oxford University Press and Foundation for the European Review of Agricultural Economics 2009; all rights reserved. For permissions, please email journals.permissions@oxfordjournals.org

Investment rigidity and policy measures

Teresa Serraa, Spiro Stefanoub, José M. Gila and Allen Featherstonec

a Centre de Recerca en Economia i Desenvolupament Agroalimentari (CREDA-UPC-IRTA), Spain
b Pennsylvania State University, USA
c Kansas State University, USA

Corresponding author: José M. Gil, CREDA-UPC-IRTA, Parc Mediterrani de la Tecnologia. Edifici ESAB. Av. del Canal Olimpic, 15 08860 Castelldefels, Spain. E-mail: chema.gil{at}upc.edu

Received August 2008; final version received February 2009

This paper assesses the impacts of decoupled government transfers on production decisions of a sample of Kansas farms. Our empirical analysis is based on a reduced-form application of the dual model of investment under uncertainty developed by Sckokai, which is extended to a consideration of irregularities in the capital stock adjustment cost function. To do so we adopt the threshold regression methods proposed by Hansen. The econometric results support the existence of three regimes characterised by different economic behaviour. Our analysis suggests that in a dynamic setting that allows for irregularities in the capital adjustment cost function, decoupled transfers can have a powerful influence on production decisions. The dynamics of the stock of capital cause this influence to grow over time.

Keywords: Investment, decoupling, threshold behaviour

JEL classification: Q12, Q18

Review coordinated by Paolo Sckokai


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