The Economic Threshold with a Stochastic Pest Population: a Real Option Approach

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The Economic Threshold with a Stochastic Pest Population: a Real Option Approach

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Saphores, Jean-Daniel M. ()

Abstract

Using real options, we formulate an optimal stopping model for applying pest control measures when the density of a pest population fluctuates randomly. This model is applied to the control of a foliar pest of apples (the European Red Mite) via a pesticide, and solved numerically by a boundary-tracking algorithm. We find that the pest density above which the pesticide should be applied increases with the pest density volatility. A sensitivity analysis highlights the importance of several biological parameters. Incorporating pest randomness into simple decision rules may thus help reduce the overall amount of chemicals applied to soils and crops.

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Paper provided by Université Laval - Département d'économique in its series Cahiers de recherche with number 9901.

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Date of creation: 1999
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Handle: RePEc:lvl:laeccr:9901

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Find related papers by JEL classification:
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Q16 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - R&D; Agricultural Technology; Agricultural Extension Services
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis

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