Agrarian structures are often characterized by some kind of economic inertia. It is particularly puzzling why unprofitable farms persist over time instead of being sold. In this paper we analyze the exit decision of farmers using the real options approach. The validity of the real options theory...

Economies of scale and scope are often not exploited in Western agriculture. A general reason is probably that various types of transaction costs limit coordination among farmers. A more specific explanation is that coordination on land markets or machinery cooperation is difficult to achieve...