A recent empirical study from Dutch dairy farming shows that farmers' investment behavior in capital assets has been highly affected by major external shocks, such as the 2008–2009 financial crisis. The study shows a surge of investment in 2008, which was a year of world record-high prices for milk. This was followed by a sharp decline in 2008-2013, interrupted only by a slight increase in 2011. The 2008-2009 financial crisis, the gradual phasing out of milk quotas, EU reductions in export subsidies, and declining price support for dairy products are likely to have affected farms’ financial flexibility and expectations, both of which play an important role in investment decisions. In addition to external shocks, farmers' socioeconomic characteristics such as high liquidity, agricultural support payments, standard output, age, and land tenure, are also shown to affect the likelihood of over- or under-investment. By computing farmers' optimal investment path and comparing it with farmers' actual investment, this study shows that it would have been more optimal for farms to smooth their investments in capital assets over time.
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