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Hysteresis And Asset Fixity Under Uncertainty

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  • Hsu, Shih-Hsun
  • Chang, Ching-Cheng

Abstract

The fixed asset theory, when viewed as an investment/disinvestment theory, implies a simple two-parameter control-limit decision rule. The theory is extended to incorporate the stochastic nature of farm revenue. The results show that ongoing uncertainty leads to a widening of the range of inaction because there is a positive value of waiting. The effects of sunk costs, or the divergence of acquisition costs from salvage values, on the degree of investment/ disinvestment irreversibility become more pronounced when uncertainty is present.

Suggested Citation

  • Hsu, Shih-Hsun & Chang, Ching-Cheng, 1991. "Hysteresis And Asset Fixity Under Uncertainty," 1991 Annual Meeting, August 4-7, Manhattan, Kansas 271275, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea91:271275
    DOI: 10.22004/ag.econ.271275
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    References listed on IDEAS

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    5. Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(4), pages 707-727.
    6. Clark Edwards, 1959. "Resource Fixity and Farm Organization," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 41(4), pages 747-759.
    7. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70(6), pages 538-538.
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