Responsiveness of farm investment to price changes: An empirical study of the French crop sector
Résumé
Understanding how farmers respond to prices can help shed light into investment behavior and inform
policy makers. We here investigate the investment behavior of French crop farmers between 2002 and
2014, with a focus on adjustments to investment price and output price. The analysis relies on a
structural investment model derived from the maximization of farmers’ future expected profit. This
model is estimated using a Hausman-Taylor panel data procedure. Our results show evidence of
significant changes in investment behavior over time. In the period between 2002 and 2006, price
volatility was lower and farmers’ investment behavior was more responsive to the output price than
to investment price. In contrast, in the period between 2007 and 2014, price volatility was higher and
farmers’ investment behavior responded much more to investment price.
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