The Role of Bounded Rationality in Farm Financing Decisions – First Empirical Evidence –

Oliver Musshoff, Norbert Hirschauer and Harm Wassmuss

No 51545, 2009 Conference, August 16-22, 2009, Beijing, China from International Association of Agricultural Economists

Abstract: Farmers do not often change from their house bank to another bank, even if the competing banks offer better conditions. This “reluctance to switch” can be explained, on the one hand, by the transaction costs resulting from such a change of business relation. On the other hand, it may be the result of bounded rationality. The results of a survey of North German farmers show that they are indeed bounded rational borrowers. They greatly underestimate the monetary disadvantages which are caused by the higher interest rates for loans from their house bank. In other words: They do not switch bank even if their individually perceived transaction costs are already “covered” by the lower interest rates of the alternative loan offer.

Keywords: Agricultural Finance; Farm Management; Financial Economics; Institutional and Behavioral Economics (search for similar items in EconPapers)
Pages: 17
Date: 2009
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:iaae09:51545

DOI: 10.22004/ag.econ.51545

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