Investment and Abandonment Behavior of Rural Households: An Empirical Investigation

This article uses models of irreversible investment under uncertainty to examine the investment and abandonment behavior of poor rural households. It considers the decision of Ugandan coffee-farming households to invest in or abandon coffee trees. The observed levels of investment and abandonment ar...

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Bibliographic Details
Published in:American journal of agricultural economics 2010-07, Vol.92 (4), p.1065-1086
Main Author: Hill, Ruth Vargas
Format: Article
Language:English
Subjects:
Agricultural development
Agricultural economics
Agricultural investment
Behavior
Capital investments
Capital stocks
Coffee
Coffee industry
Economic models
Farming
Financial investments
Fixed costs
Households
Investment
Investment credit
Investment value
Investments
Liquidity
Modeling
models of friction
O12
Price changes
Q12
Rural areas
Rural credit
Rural economics
Seedlings
shocks
Studies
Uganda
Uncertainty
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Summary:This article uses models of irreversible investment under uncertainty to examine the investment and abandonment behavior of poor rural households. It considers the decision of Ugandan coffee-farming households to invest in or abandon coffee trees. The observed levels of investment and abandonment are found to be consistent with models of investment that allow for irreversibility, uncertainty, fixed costs, and liquidity constraints. The findings highlight the importance of addressing volatility, irreversibility, fixed costs, and liquidity constraints in order to increase households' responsiveness to changes in the fundamentals and to enable households to recover from shocks to their capital stock.
ISSN:0002-9092
1467-8276
DOI:10.1093/ajae/aaq055