Hostname: page-component-cd9895bd7-q99xh Total loading time: 0 Render date: 2024-12-26T03:31:02.558Z Has data issue: false hasContentIssue false
  • English
  • Français

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

Published online by Cambridge University Press:  26 January 2015

Helen Pushkarskaya  and
Maria I. Marshall
Helen Pushkarskaya
Affiliation:
Department of Agricultural Economics, University of Kentucky, Lexington, KY
Maria I. Marshall
Affiliation:
Department of Agricultural Economics, Purdue University, West Lafayette, IN
Get access Rights & Permissions [Opens in a new window]

Abstract

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.

Keywords

annuityfamily business systemintertemporal choicelump sumtobacco buyoutG11H31J10
Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 41 , Issue 3 , December 2009 , pp. 613 - 624
Copyright
Copyright © Southern Agricultural Economics Association 2009

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Atkins, G.L. Spend It or Save It? Pension Lump Sum Distributions and Tax Reform. Washington, D.C.: Employee Benefit Research Institute, 1986.Google Scholar
Beach, R.H., Jones, A.S., Austin, W.D., and Crankshaw, E.C. “Tobacco Farmer Attitudes towards Tobacco Manufacturers: Divergence of Interests in a Rapidly Changing Market.” American Public Health Association Annual Conference, November 4–8, 2006, Boston, MA (2006).Google Scholar
Beach, R.H., Jones, A.S., and Johnston., S.A. Tobacco Farmer Interest and Success in Diversification. Internet site: http://purl.umn.edu/19151 (2005).Google Scholar
Brown, A.B. ““Outlook and Situation.” Burley Tobacco, 2005 Information .” North Carolina Cooperative Extension Service Publication AG-376(2005):1–5.Google Scholar
Brown, A.B., Snell, W.M., and Tiller., K.H. “The Changing Political Environment for Tobacco— Implications for Southern Tobacco Farmers, Rural Economies, Taxpayers, and Consumers.” Journal of Agricultural and Applied Economics 31,2(1999):291–308.CrossRefGoogle Scholar
Bütler, M., and Teppa., F. “The Personal Discount Rate: Evidence from Swiss Pension Funds.” Working paper, 2003.Google Scholar
Census of Agriculture, 2002. Internet site: http://www.agcensus.usda.gov.Google Scholar
Curme, M.A., and Even., W.E. “Pension Coverage and Borrowing Constraints.” The Journal of Human Resources 30,4(1995):701–12.CrossRefGoogle Scholar
Danes, S.M., Rueter, M.A., H-K, Kwon, and Doherty., W. “Family FIRO Model: An Application to Family Business.” Family Business Review 15,1(2002):31–43.Google Scholar
Danes, S.M., Zuiker, V., Kean, R., and Danes., J.A. “Predictors of Family Business Tensions and Goal Achievement.” Family Business Review 12,3(1999):241–52.Google Scholar
Duncan, K.A., Stafford, K., and Zuiker., V.S. “Family Integrity.” A Toolkit for Home-Based Entrepreneurs. Heck, R.K.Z., Puryear, A.N. and Tombline, P.A. eds., pp. 57–67. Conference Monograph, Lawrence N. Field Center for Entrepreneurship and Small Business, New York: Baruch College, 2003.Google Scholar
Fernandez, P. “Pre-retirement Lump Sum Distributions.” Trends in Pensions. Turner, John and Beller, Daniel, eds. Washington, D.C.: U.S. Dept. of Labor, PWBA, 1992.Google Scholar
Frederick, S., Loewenstein, G., and O'Donoghue, T. “Time Discounting and Time Preference: A Critical Review.” Journal of Economic Literature 40–2,1(2002):351–401.Google Scholar
Gale, F. “Tobacco Communities Facing Change.” Rural Development Perspectives 14(1999):36–43.Google Scholar
Gale, H.F., Foreman, L., and Capehart., T. US Tobacco Farming Trends. Washington, D.C.: Economic Research Center, US Department of Agriculture, 1999.Google Scholar
Greene, W.H. 2000 Econometric Analysis, 4th ed. Upper Saddle River, NJ: Prentice-Hall, Inc., 2002.Google Scholar
Heck, R.K.Z., and Trent., E.S. “The Prevalence of Family Business from a Household Sample.” Family Business Review 12,3(1999):209–19.Google Scholar
Piacentini, J.S. Preservation of Pension Benefits.” EBRI Issue Brief, 98. Washington, D.C.: Employee Benefit Research Institute, 1990.Google Scholar
Samuelson, P.A. “A Note on Measurement of Utility.” The Review of Economic Studies 4,2(1937): 155–61.Google Scholar
Snell, W. The Buyout: Short-Run Observations and Implications for Kentucky's Tobacco Industry. Internet site: http://www.uky.edu/Ag/TobaccoEcon/publications/buyout_short-run.pdf (2005).Google Scholar
Stafford, K., Duncan, K., Danes, S., and Winter., M. “A Research Model for Sustainable Family Businesses.” Family Business Review 12(1999): 197–208.CrossRefGoogle Scholar
Thaler, R.H. “Some Empirical Evidence on Dynamic Inconsistency.” Economics Letters 8,3(1981):201–7.CrossRefGoogle Scholar
Tversky, A., and Kahneman., D. “Availability: A Heuristic for Judging Frequency and Probability.” Cognitive Psychology 5,2(1973):207–32.Google Scholar
Womach, J. Tobacco Quota Buyout Proposals in the 108th Congress. CRS Report for Congress, April 2004.Google Scholar