Uncertain land availability and investment decisions: The case of Dutch dairy farms

Within the EU, uncertainty about the possibility of acquiring land can be quite significant for individual farmers in sectors like dairy farming. Farm-level investment decisions are commonly made ex-ante, when the farmer is not certain about the possibility of purchasing land. This possibility is realised only in a future period. In this paper, we have developed and applied a simple two-period model in which a profit-maximising farmer, facing uncertainty about the possibility of acquiring land, has to choose the optimal mix of capital (buildings) investment and land endowment. We illustrate the model using data from Dutch dairy farms.