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.