Timing and type of exit from farming: farmers' early retirement programmes in Finland

Abstract

We analyse farmers' choice between three discrete occupational options: (1) exit and close down the farming operation; (2) exit and transfer the farm to a new entrant; (3) continue farming and retain the option to exit later. The optimisation problem is formulated as a recursive optimal stopping problem. The unknown parameters are first estimated by a switching‐type multivariate probit model and then by the simulated maximum likelihood (SML) method, controlling for serial correlation of the errors. The results suggest that the timing and type of farmer exit decisions respond elastically to the economic environment, and to farmer and farm characteristics.