The estimation of investment equations at the farm level

Abstract

On the basis of annual data for individual farms, a model is estimated which explains investment by the Dutch dairy sector in land, buildings and machinery. As a farmer does not invest in all three capital goods every year, a large number of observations are clustered at zero. Because of this, the commonly used estimation methods are unsatisfactory. In this study an adjusted estimation method is developed, known as an ‘infrequency purchase model’. Application of this statistical model offers the opportunity to build an investment model which is based on the neo-classical production theory, but also contains some elements of the financial theory of investment.

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