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Abstract
This paper deals with the analysis of the impact of credit rationing on the farmer’s economic
equilibrium and the analysis of different policy scenarios in a derived neoclassical adjustment
cost framework. The theoretical model is an optimal dynamic investment model, in which the
upper bound on investment is introduced. The limit of the investment enables to analyse the
consequence of the occurrence of credit rationing on farmer’s capital accumulation, investment
and supply. The method of optimal control is used to solve the optimization problem. The results
show that the occurrence of credit rationing may significantly determine a farmer’s economic
equilibrium. Then the analysis of defined policy scenarios suggests that a loan guarantee efficiently
solves the problem of the occurrence of external credit rationing. Interest rate subsidy
may produce overinvestment and, thus, increases the probability of occurrence of the crowding-out
effect, especially in the group of non-credit constraint farmers. Moreover, as far as the cost of
agricultural policy is concerned, other agricultural support tools are less effective. The numerical
application shows that the farmer’s economic equilibrium is mostly sensitive to the initial
bound on investment, the parameter of the cost function, the price, the level of technology and
the discount rate. Finally, if the uncertainty is introduced, then the level of investment spending
and capital accumulation is lower.