Investment, credit constraints and public policy in a neoclassical adjustment cost framework

Arbeitspapier

This paper deals with the analysis of the impact of credit rationing on the farmer's economic equilibrium and the analysis of different policy scenarios in a derived neoclassical adjustment cost framework. The theoretical model is an optimal dynamic investment model, in which the upper bound on investment is introduced. The limit of the investment enables to analyse the consequence of the occurrence of credit rationing on farmer's capital accumulation, investment and supply. The method of optimal control is used to solve the optimization problem. The results show that the occurrence of credit rationing may significantly determine a farmer's economic equilibrium. Then the analysis of defined policy scenarios suggests that a loan guarantee efficiently solves the problem of the occurrence of external credit rationing. Interest rate subsidy may produce overinvestment and, thus, increases the probability of occurrence of the crowdingout effect, especially in the group of non-credit constraint farmers. Moreover, as far as the cost of agricultural policy is concerned, other agricultural support tools are less effective. The numerical application shows that the farmer's economic equilibrium is mostly sensitive to the initial bound on investment, the parameter of the cost function, the price, the level of technology and the discount rate. Finally, if the uncertainty is introduced, then the level of investment spending and capital accumulation is lower.

Object Details

• Alternative title: Investitionen, Kreditrationierung und Agrarpolitik in einem dynamischen neoklassischen Modell mit Anpassungskosten
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper ; No. 115

Classification and Topics

• Classification: Wirtschaft ; Optimization Techniques; Programming Models; Dynamic Analysis ; Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets ; Agricultural Finance ; Agricultural Policy; Food Policy
• Subject: Kreditrationierung ; Investitionen ; Kapital ; EAGFL (Europäische Ausrichtungs-und Garantiefond für die Landwirtschaft) ; Dynamische Anpassungskosten und langfristiges Gleichgewicht. Credit constraint ; investment ; capital ; SGAFF (Supporting and Guarantee Agricultural and Forestry Fund) ; Adjustment cost and farmer's economic equilibrium.

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Čechu­ra, Lukas
• Event: Veröffentlichung
• (who): Leibniz Institute of Agricultural Development in Central and Eastern Europe (IAMO)
• (where): Halle (Saale)
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/28497
• URN: urn:nbn:de:gbv:3:2-11443
• Last update: 10.03.2025, 11:42 AM CET