INVESTMENT BEHAVIOR OF ILLINOIS CASH GRAIN FARMERS: A SIMULATED EXPERIMENTAL APPROACH

Variation in machinery investment exists both intertemporally and across individual farms. The diverse structural characteristics of farms and changes in public policy affecting the farm decision environment contribute to this variation. The relative importance of these two factors in Illinois cash grain farmers' machinery investment decisions is studied in an experimental setting.; Operators of seven commercial farms in central Illinois with differing tenure, leverage and machinery complement age characteristics participated. Financial performance of the operators' farms was simulated for four years under a base and three alternative public policy scenarios. The alternative scenarios consisted of export market oriented farm legislation, tax reform and a government-sponsored interest rate buy-down program encouraging new machinery investment. Farmers made machinery investment decisions each year after evaluating their firm's financial performance. Farmers' expectations and subjective probability estimates for commodity prices and yields partially determined their firm's performance.; Pooling the cross-sectional time series data of the experiment, variation in machinery investment was statistically related to individual characteristics of farms and farmers' economic environments. Farmers owning more of their land and those with older machinery had higher investment. Relative leverage positions only mildly influenced investment. Investment increased with expectations of higher machinery and lower land values.; Investment responses were relatively insensitive to the numeric specifications of the alternative policy scenarios. Significant changes in total investment could not be statistically determined. However, farmers altered the timing of their purchases from year to year. Finally, farmers had strong philosophies regarding the need to maintain an even investment pace and machinery complement in good repair.; Students who pretested the experiment were found to have different analytic thought processes than farmers based on usage of financial statements. Also, farmers based decisions primarily on their firm's recent historical performance.; The experiment's results imply public policies designed to change farmer's behavior need to be re-evaluated since they only marginally affected behavior in this study. Structural characteristics of farms must also be considered in behavioral studies. Aggregate studies of farmers' behavior often omit these factors. Finally, investment recommendations must be tailored to farms with differing characteristics and account for farmers' attitudes.