Drivers of Agricultural Physical Capital Development

Theoretical Framework and Hypotheses

This paper aims to identify drivers of physical capital adjustments in agriculture. It begins with a review of some of the most important theories and modeling approaches regarding firms’ adjustments of physical capital. It suggests that determinants of physical capital adjustments in agriculture can be divided into three main groups, related to: expected profit, expected societal benefits and costs, and expected private non-pecuniary benefits and costs. The main part of this paper is concerned with the demand side of the physical capital market and one section also briefly discusses some aspects related to supply of farm assets.

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