Economic Hysteresis in Variety Selection
AbstractInvesting in a new perennial crop variety involves an irreversible commitment of capital and generates an uncertain return stream. As a result, the decision to adopt a new variety includes a significant real option value. Waiting for returns to rise above this real option causes a delay in adoption because of economic hysteresis. This study tests for hysteresis in the adoption of wine grape varieties using a sample of district-level data from the state of California. The empirical results show a significant hysteretic effect in wine grape investment, which might be reduced by activities that smooth earnings over time.
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Bibliographic InfoArticle provided by Southern Agricultural Economics Association in its journal Journal of Agricultural and Applied Economics.
Volume (Year): 35 (2003)
Issue (Month): 01 (April)
California; grapes; hysteresis; investment; jump diffusion; real options; variety adoption; wine; Q14; Q11; D92; C34;
Find related papers by JEL classification:
- Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance
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- C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
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