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Agricultural investors valuing sequences of monetary rewards – results of an experiment

Agricultural investors valuing sequences of monetary rewards – results of an experiment Purpose – The purpose of this paper is to quantify the differences between the classical normative investment theory and alternative investment models of agricultural stakeholders’ choices. Design/methodology/approach – Farmers ( n =1,024) and agricultural commodity traders ( n =509) were asked to rank investment alternatives. Non‐linear regressions were integrated into a Monotonic Analysis of Variance algorithm to analyze the investment rankings. The results reveal coefficients for classical constant discounting, hyperbolic discounting and a preference for a sequence model. Two information criteria indicate the models’ goodness of fit and allow a comparison of the investment rankings of different age groups. Findings – Agribusiness stakeholders have preferences for sequences and could be willing to accept lower internal rates of return for monotone‐distributed rewards. Practical implications – The results are useful for state‐aided agricultural investment policies and contractual relations within agribusiness. Originality/value – To the author's knowledge, this paper is the first paper to analyze agricultural stakeholders’ preferences for sequences. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Agricultural Finance Review Emerald Publishing

Agricultural investors valuing sequences of monetary rewards – results of an experiment

Agricultural Finance Review , Volume 74 (3): 18 – Aug 26, 2014

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Publisher
Emerald Publishing
Copyright
Copyright © 2014 Emerald Group Publishing Limited. All rights reserved.
ISSN
0002-1466
DOI
10.1108/AFR-06-2013-0026
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to quantify the differences between the classical normative investment theory and alternative investment models of agricultural stakeholders’ choices. Design/methodology/approach – Farmers ( n =1,024) and agricultural commodity traders ( n =509) were asked to rank investment alternatives. Non‐linear regressions were integrated into a Monotonic Analysis of Variance algorithm to analyze the investment rankings. The results reveal coefficients for classical constant discounting, hyperbolic discounting and a preference for a sequence model. Two information criteria indicate the models’ goodness of fit and allow a comparison of the investment rankings of different age groups. Findings – Agribusiness stakeholders have preferences for sequences and could be willing to accept lower internal rates of return for monotone‐distributed rewards. Practical implications – The results are useful for state‐aided agricultural investment policies and contractual relations within agribusiness. Originality/value – To the author's knowledge, this paper is the first paper to analyze agricultural stakeholders’ preferences for sequences.

Journal

Agricultural Finance ReviewEmerald Publishing

Published: Aug 26, 2014

Keywords: Discounted utility; Hyperbolic discounting; Investment behavior; Preference for sequences

References