Essays on pig production efficiency and farmers' financial decisions under uncertainty

Recent structural changes in agricultural production towards fewer, but larger, units pose challenges for farmers in decision making about practical production and about managerial practices to increase efficiency, which are vital for farm productivity and profitability. In studies using mathematical programming and econometric models, this thesis evaluated farm-specific characteristics related to the individual technical efficiency (TE) of each input and output factor and of managerial characteristics associated with persistent TE (PTE) and residual TE (RTE). Regarding farm-specific variables, the results indicated that advisory services, farm location and most housing practices were not significant for technical efficiency, with the exception of recent technology such as heated floors. Use of written instructions on feeding and in preventing infectious diseases was associated with higher technical efficiency. For the best results, decision makers should use separate approaches depending on pig production specialisation and the input or output efficiency requiring improvement. Regarding managerial practices, managerial experience, economy-driven goals and use of strategic management accounting practices were drivers of PTE. In contrast, conducting bookkeeping checks more frequently and focusing on meeting market demands in terms of quality were negatively associated with PTE. Joint time significance evaluation of lagged individual technical efficiency on variables of structural change in the regression model confirmed the long-term nature of investments in Swedish pig farming. Under uncertainty, decisions made by farmers may be biased, producing suboptimal solutions. For example, illusion of control can give a sense of controlling power in situations where the outcome is determined by chance. Alternative ways to collate and analyse data are needed to evaluate behaviours under uncertainty. Presence of illusion of control in farmers’ financial decisions was explored in a study with a framed economic experimental design, survey data and a psychological scale. The results did not indicate the presence of illusion of control in the sample of Swedish farmers studied. The outcome measures showed low levels of correlation, suggesting that different methods and measurement instruments are complements, rather than substitutes. Findings provide information that could help farmers in their complex production and managerial decisions

Impact of management practices on persistent and overall technical efficiency

Managerial capacity builds over the years and the accumulated knowledge and practice affect the outcome of the period that follows, with long-run/permanent effects on inefficiency. Therefore predictions of the influence of managerial capacity on the time-varying inefficiency, regularly estimated as overall efficiency, may be biased. This study analysed the influence of farm management practices on both the persistent and overall efficiency. The empirical application in the study was pig farms in Sweden. Data from the Swedish Farm Accounting Survey (FAS) 2002-2012 and information from a survey related to managerial practices in Sweden were used. The results suggest that managerial practices shape/are related with the permanent efficiency of farms. Managerial experience, agricultural education, and economy-driven goals were found to have positive effect, whereas managerial courses, use of updated budgets, and PigWin software were found to be positively related with the persistent efficiency on the farms. Farmers' focusing on meeting market demand in terms of quality was found to be negatively related with the persistent efficiency. Overall technical efficiency was positively related only with the use of PigWin software, therefore a hidden causality effect on overall technical efficiency was obtained for managerial experience, agricultural education and economy-driven goals

Illusion of control in farmers’ investment and financing decisions

Purpose – People’s tendency to overestimate their ability to control random events, known as illusion of control, can affect financial decisions under uncertainty. This study developed an artifactual field experiment on illusion of control for a farm machinery investment. Design/methodology/approach – In an experiment with two treatments, the individual farmer was either given or not given a sense of control over a random outcome. After each decision, the authors elicited perceived control, and a questionnaire collected additional indirect measures of illusion of control from 78 German farmers and 10 farm advisors. Findings – The results did not support preregistered hypotheses of the presence of illusion of control. This null result was robust over multiple outcomes and model specifications. The findings demonstrate that cognitive biases may be small and difficult to replicate. Research limitations/implications – The sample is not representative for the German farming population. The authors discuss why the estimated treatment effect may represent a lower bound of the true effect. Originality/value – Illusion of control is well-studied in laboratory settings, but little is known about the extent to which farmers’ behavior is influenced by illusion of control

Illusion of control in farmers’ investment and financing decisions

People’s tendency to overestimate their ability to control random events, known as illusion of control, can affect financial decisions under uncertainty. This study developed an artifactual field experiment on illusion of control for a farm machinery investment.Design/methodology/approachIn an experiment with two treatments, the individual farmer was either given or not given a sense of control over a random outcome. After each decision, the authors elicited perceived control, and a questionnaire collected additional indirect measures of illusion of control from 78 German farmers and 10 farm advisors.FindingsThe results did not support preregistered hypotheses of the presence of illusion of control. This null result was robust over multiple outcomes and model specifications. The findings demonstrate that cognitive biases may be small and difficult to replicate.Research limitations/implicationsThe sample is not representative for the German farming population. The authors discuss why the estimated treatment effect may represent a lower bound of the true effect.Originality/valueIllusion of control is well-studied in laboratory settings, but little is known about the extent to which farmers’ behavior is influenced by illusion of control