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Entry and Exit of firms explained by trigger points: Dutch glasshouse horticulture

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  • Goncharova, Natalia V.
  • Oskam, Arie J.
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    Abstract

    The entry and exit decisions, considered as investment decisions, are investigated in the paper. Taking into account the heterogeneity of entry and exit, the analysis is based on two types of entry-exit: real (related to the establishment or closing of a firm), or entry-exit in a new sector (indicating the diversification or changing specialisation). The theoretical model is based on Marshallian trigger points with Real Option trigger points as an alternative. The estimation exploited the negative binomial model to investigate the role of trigger points (thresholds) on the observed number of entry or exit firms in Dutch glasshouse horticulture over 25 years. Firms should overcome different thresholds depending on types of entry and exit. Marshallian trigger points function as good as the ones based on Real Option theory. The estimation of the model, which takes into account expected output prices, uncertainty and the interest rate, however, provides the best explanation of entry and exit. That model can be considered of a flexible variant of Real Option theory. The model provides plausible elasticities of entry and exit, either real or in changing specialisation.

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    File URL: http://purl.umn.edu/44451
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    Bibliographic Info

    Paper provided by European Association of Agricultural Economists in its series 2008 International Congress, August 26-29, 2008, Ghent, Belgium with number 44451.

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    Date of creation: 2008
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    Handle: RePEc:ags:eaae08:44451

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    Keywords: entry and exit; trigger points; glasshouse horticulture; Crop Production/Industries; Industrial Organization;

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    1. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
    2. Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers 91, Princeton, Department of Economics - Financial Research Center.
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