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The Impact of Borrowing Constraints on Farm Households: A Life-Cycle Approach

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  • Phimister, Euan

Abstract

This paper examines the potential impact of borrowing constraints on farm households. Using an adaptation of a life-cycle model of the farm household, two types of borrowing constraints are investigated. The first type of constraint, restrictions on the ratio of total debt to farm value added, reflects the possibility that financial institutions restrict lending on the basis of current farm profitability. The second type, restrictions on the debt to asset ratio, reflects the possibility that loans must be secured against assets. These two versions of the model are analysed and then simulated for a set of Dutch dairy farms. From the results it was found that, whilst the impact of such constraints does not appear to be affected by farm size, the proportion of land owned was a factor in determining which farms were likely to be borrowing-constrained. Copyright 1995 by Oxford University Press.

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  • Phimister, Euan, 1995. "The Impact of Borrowing Constraints on Farm Households: A Life-Cycle Approach," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 22(1), pages 61-86.
    • Handle: RePEc:oup:erevae:v:22:y:1995:i:1:p:61-86
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    Cited by:

    1. Lagerkvist, Carl Johan & Olson, Kent D., 2002. "Optimal Capital Structure And Income Support Reform Uncertainty," 2002 Annual meeting, July 28-31, Long Beach, CA 19694, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Harris, James Michael & Blank, Steven C. & Erickson, Kenneth W. & Hallahan, Charles B., 2010. "Off-farm Income and Investments in Farm Assets: A Double Hurdle Approach," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61531, Agricultural and Applied Economics Association.
    3. Euan Phimister, 1995. "Farm Household Production In The Presence Of Restrictions On Debt: Theory And Policy Implications," Journal of Agricultural Economics, Wiley Blackwell, vol. 46(3), pages 371-380, September.
    4. Harris, James Michael & Dillard, John & Erickson, Kenneth W. & Hallahan, Charles B., 2009. "Changes in Debt Patterns and Financial Structure of Farm Businesses: A Double Hurdle Approach," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49402, Agricultural and Applied Economics Association.
    5. Josep M. Argilés, 1998. "Accounting information and the prediction of farm viability," Economics Working Papers 277, Department of Economics and Business, Universitat Pompeu Fabra.
    6. Lagerkvist, Carl Johan & Olson, Kent D., 2001. "Asymmetric Information, Capital Structure And Agricultural Investment," 2001 Annual meeting, August 5-8, Chicago, IL 20652, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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