Lump Sum versus Annuity: Choices of Kentucky Farmers during the Tobacco Buyout Program

Our study uses the data collected during the implementation of the tobacco buyout program in Kentucky to evaluate how rural households, diverse in income, age, family structure, location, education level, and other characteristics, made a choice between annuities and a lump-sum payment. Subjects in our field experiment did not have to retire or change their employment, as did subjects in many field studies of the choice between annuities and lump-sum payments, which allowed us to evaluate the relationship between the option choice and a decision whether to exit the tobacco market. Our results suggest that while discounted utility theory gives acceptable predictions of the farmers’ behavior, other factors have to be taken into consideration. First, there are consistent biases that describe individual intertemporal behavior, such as availability bias or acquiescence bias. Second, there is a certain degree of heterogeneity in individual intertemporal preferences that correlates with their personal characteristics, such as education and production status. Third, our analysis revealed that the decision to exit the tobacco market positively correlated with the decision to take a lump-sum payment.


Issue Date:
2009-12
Publication Type:
Journal Article
DOI and Other Identifiers:
Record Identifier:
https://ageconsearch.umn.edu/record/56647
PURL Identifier:
http://purl.umn.edu/56647
Published in:
Journal of Agricultural and Applied Economics, 41, 3
Page range:
613-624
Total Pages:
12
JEL Codes:
G11; H31; J10




 Record created 2017-04-01, last modified 2020-10-28

Fulltext:
Download fulltext
PDF

Rate this document:

Rate this document:
1
2
3
 
(Not yet reviewed)