Does vertical integration reduce investment reluctance in production chains? An agent-based real options approach
AbstractThis paper uses an agent-based real options approach to analyze whether stronger vertical integration reduces investment reluctance in pork production. A competitive model in which firms identify optimal investment strategies by using genetic algorithms is developed. Two production systems are compared: a perfectly integrated system and a system in which firms produce either the intermediate product (piglets) or the final product (pork). Simulations show that the spot market solution and the perfectly integrated system lead to a very similar production dynamics even with limited information on production capacities. The results suggest that, from a pure real options perspective, spot markets are not significantly inferior to perfectly integrated supply chains.
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Bibliographic InfoPaper provided by Humboldt University Berlin, Department of Agricultural Economics in its series Structural Change in Agriculture/Strukturwandel im Agrarsektor (SiAg) Working Papers with number 59521.
Date of creation: Sep 2009
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real options; supply chain; agent-based models; genetic algorithms; Agribusiness; Agricultural and Food Policy; Agricultural Finance; Institutional and Behavioral Economics; Productivity Analysis;
This paper has been announced in the following NEP Reports:
- NEP-AGR-2010-05-29 (Agricultural Economics)
- NEP-ALL-2010-05-29 (All new papers)
- NEP-CMP-2010-05-29 (Computational Economics)
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