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Real options or net present value? An experimental approach on the investment behavior of Kazakhstani and German farmers

Dulat Tubetov (Astana, Kazakhstan)
Syster Christin Maart-Noelck (Georg-August-Universität Göttingen, Göttingen, Germany)
Oliver Musshoff (Georg-August-Universität Göttingen, Göttingen, Germany)

Agricultural Finance Review

ISSN: 0002-1466

Article publication date: 4 November 2013

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Abstract

Purpose

The purposes of the study are to compare the investment behavior of farmers in Kazakhstan as a transforming country and in Germany as a Western industrialized country as well as to analyze whether the investment behavior of farmers is consistent with the normative benchmarks of the net present value approach or the real options (RO) approach.

Design/methodology/approach

The paper conducted an experiment with 100 Kazakhstani and 106 German farmers. The first part of the experiment describes an investment opportunity in an agricultural and in a non-agricultural treatment. The second part refers to a Holt and Laury lottery to determine farmers' risk attitude that could influence the investment behavior.

Findings

The results show that both approaches do not provide an exact prediction of the investment behavior of farmers. However, German farmers invest later than Kazakhstani farmers meaning that the investment behavior of German farmers is closer to the RO approach. This might imply that German farmers are more likely to take into account the value of flexibility when making investment decisions than Kazakhstani farmers.

Research limitations/implications

Since investment behavior is country-specific, it is worth investigating whether farmers from other transforming countries would show different investment behavior compared to farmers from other Western industrialized countries. Furthermore, decision-making behavior related to investments could be different from that related to disinvestments. Therefore, it may be interesting to analyze the disinvestment decisions of farmers in transforming and Western industrialized countries.

Practical implications

The results show that it is not acceptable to apply the results of experiments investigating the investment behavior of entrepreneurs in a transforming country to entrepreneurs in a Western industrialized country and vice versa. Furthermore, training for farmers is needed because there is still room for improvement in order to achieve the RO benchmark. Finally, taking into account RO effects could improve the results of policy impact analysis.

Originality/value

This is the first experimental study comparing the investment behavior of farmers from a transforming country and from a Western industrialized country.

Keywords

Citation

Tubetov, D., Christin Maart-Noelck, S. and Musshoff, O. (2013), "Real options or net present value? An experimental approach on the investment behavior of Kazakhstani and German farmers", Agricultural Finance Review, Vol. 73 No. 3, pp. 426-457. https://doi.org/10.1108/AFR-06-2012-0031

Publisher

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Emerald Group Publishing Limited

Copyright © 2013, Emerald Group Publishing Limited

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