IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Die Berücksichtigung von Unsicherheit und Flexibilität in der Investitionsplanung – dargestellt am Beispiel einer Vertragsinvestition für Roggen

  • Musshoff, Oliver
  • Hirschauer, Norbert

Investment decisions are, as a rule, characterized by uncertainty, irreversibility and flexibility. Simple net present value calculations will not account for these features. In many situations even flexible investment planning with decision trees, which represents the most advanced method of traditional investment appraisal, does not have the capacity to solve practical decision problems adequately. One handicap is a realistic and manageable representation of stochastic variables. It has long been known that stochastic simulation procedures offer a nearly unlimited capacity to represent distributions and stochastic processes. However, a standard simulation will not allow for the consideration of flexibility. The problem is that with a simple forward moving simulation of stochastic paths it is not clear at potential investment dates whether waiting or investing represents the optimal strategy. In this paper we show how stochastic simulation procedures can be integrated successfully into a backward recursive programming approach. The resulting modus operandi can be called “Bounded Recursive Stochastic Simulation†(BRSS). We use this efficient combination of simulation and dynamic programming to answer the question whether farmers should buy sales contracts which guarantee fixed prices for rye in the future. The results of the model affirm the importance of uncertainty and flexibility for investment decisions. They also show that the actual conditions offered by the wholesale buyer are not economically attractive for farmers, unless they are extremely risk averse. Thus, model results coincide with the empirical evidence that farmers do not enter these contracts.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://purl.umn.edu/97437
Download Restriction: no

Article provided by Humboldt-Universitaet zu Berlin, Department for Agricultural Economics in its journal German Journal of Agricultural Economics.

Volume (Year): 53 (2004)
Issue (Month): 4 ()
Pages:

as
in new window

Handle: RePEc:ags:gjagec:97437
Contact details of provider: Postal: Philippstr. 13, 10115 Berlin
Phone: +49 (0)30 2093 6305
Fax: +49 (0)30 2093 6497
Web page: http://www.gjae-online.de/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. LeBaron Blake, 1997. "A Fast Algorithm for the BDS Statistic," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 2(2), pages 1-9, July.
  2. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
  3. Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
  4. McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November.
  5. Martin Odening & Oliver Mu�hoff & Alfons Balmann, 2005. "Investment decisions in hog finishing: an application of the real options approach," Agricultural Economics, International Association of Agricultural Economists, vol. 32(1), pages 47-60, 01.
  6. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ags:gjagec:97437. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.