Modelling financial and dynamic investment behaviour

Most models routinely used for modelling the impact of agricultural policies at the farm level are based on rather unrealistic assumptions. One of the most common is the assumption of static behaviour by farmers. In fact, most models assume an immediate response to a policy and/or a market change, without modelling the adjustment path that leads farms from the initial equilibrium to the new one. Of course, modelling the dynamic path of farmers decisionmaking makes the models much more realistic, especially when they aim to analyse issues for which the time component is essential. Thus the objective of this chapter is to analyse a set of models that try to relax the assumption of static behaviour by farmers.