| Abstract: | This paper develops a dynamic model of investment under rational expectations, assuming farm‐specific production technologies and adjustment cost structures. The model distinguishes regimes of negative, zero and positive investments and maintains that it is optimal for a farmer not to invest for a range of shadow prices, depending on thresholds for positive and negative investments. The model is applied to a rotating sample of Dutch pig farms over the period 1980–1996. Farm‐specific parameters of the adjustment cost function and production technology are obtained using Generalised Maximum Entropy estimation. Cluster analysis using the farm‐specific adjustment cost parameters indicates that five groups of farms with distinct adjustment cost structures can be identified. A tobit regression analysis is used to explain the impact of different socio‐economic factors on the size of the threshold between positive and negative investments. |
