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

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.

Citation

Philipp Steinhorst, M. and Bahrs, E. (2014), "Agricultural investors valuing sequences of monetary rewards – results of an experiment", Agricultural Finance Review, Vol. 74 No. 3, pp. 379-396. https://doi.org/10.1108/AFR-06-2013-0026