Investment rigidity and policy measures

This paper assesses the impacts of decoupled government transferson production decisions of a sample of Kansas farms. Our empiricalanalysis is based on a reduced-form application of the dualmodel of investment under uncertainty developed by Sckokai,which is extended to a consideration of irregularities in thecapital stock adjustment cost function. To do so we adopt thethreshold regression methods proposed by Hansen. The econometricresults support the existence of three regimes characterisedby different economic behaviour. Our analysis suggests thatin a dynamic setting that allows for irregularities in the capitaladjustment cost function, decoupled transfers can have a powerfulinfluence on production decisions. The dynamics of the stockof capital cause this influence to grow over time.