THE IMPACT OF MANURE PRODUCTION RIGHTS ON CAPITAL INVESTMENT IN THE DUTCH PIG SECTOR

In this paper the effect of manure production rights on investment decisions of Dutch pig farmers is examined. A dynamic optimization model of investment that explicitly takes zero investments into account is augmented by a constraint on production arising from the introduction of manure production rights. In the theoretical model it is shown that such a constraint has a reducing effect on investment. The presence of this constraint is tested for using GMM structural break tests. The results provide evidence for the hypothesis that manure production rights have reduced investments through its effect on production.