Modeling farm level structural change in a dynamic competitive environment

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Agrarian structures are considered to be an important factor for the competitiveness of farming. Therefore, on the one hand, agricultural economists have been concerned for a long time with describing, analyzing and modeling structural change in agriculture. On the other hand, high political attention is devoted to the competitiveness of agricultural production and the income situation of farms; however, to adequately forecast structural change in agriculture in general and to analyze the effects of different political schemes in particular, a fundamental understanding of farm-level structural change, i.e., investment and disinvestment decisions of farmers, is necessary. In this subproject we develop a model in which uncertainty, dynamics and irreversibility inherent in many decision-making situations, together with the bounded rationality of decision-makers, can be taken into account. Another important issue deals with competition, i.e., interactions between different agents. The model will be developed using results from the first project phase. Finally, the results could be an important preliminary work for an improved assessment of the effects of different political schemes. Besides the methodical objective of this subproject, the improved investment and disinvestment model will be applied exemplarily to the dairy sector which shows a high (and further increasing) intensity of competition.