Publication Date:
2013-05-31
Description:
In this paper we analyse the timing of disinvestment decisions by applying a real options approach to explain the experimentally observed disinvestment behaviour of agricultural entrepreneurs. Within this framework the tendency to postpone exit and termination choices can be rationalised. The validity of the real options theory is assessed by means of economic experiments. Our results show that real options models can predict actual disinvestment decisions better than traditional investment theory. Nevertheless, the reluctance to disinvest observed in the experiments was even more pronounced than that predicted by the theory. This finding suggests that non-monetary aspects such as emotions, attachment to farming and different facets of psychological inertia should be incorporated into disinvestment models.
Keywords:
C91 - Laboratory, Individual Behavior, D81 - Criteria for Decision-Making under Risk and Uncertainty, D92 - Intertemporal Firm Choice and Growth, Investment, or Financing
Print ISSN:
0165-1587
Electronic ISSN:
1464-3618
Topics:
Agriculture, Forestry, Horticulture, Fishery, Domestic Science, Nutrition
,
Economics
Permalink
