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Abstract

Off-farm investment decisions of farm households are analyzed. Farm-level data for a sample of Kansas farms observed from 1994 through 2000 are utilized. A system of censored dependent variables is estimated to investigate the factors that influence the composition of farm households' portfolios. The central question underlying the analysis is whether farm income variability influences off-farm investment decisions. Previous analyses on the determinants of non-farm investments have failed to consider the role of income variability. Our results indicate that higher farm income fluctuations increase the relevance of non-farm assets in the farm household portfolio, thus suggesting that these assets are used as farm risk management tools.

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