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Irreversible Investment Decisions In Perennial Crops With Yield And Price Uncertainty

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  • Price, T. Jeffrey
  • Wetzstein, Michael E.

Abstract

Optimal entry and exit thresholds for Georgia commercial peach production are calculated when both price and yield follow a Brownian motion process. The thresholds are based on an irreversible sunk-cost investment model, where revenue from peach production is affected by the timing of when to enter production. Results indicate stability in Georgia peach production, with growers who are currently producing peaches remaining in production and potential peach growers delaying investment unless they have the ability of earning enhanced returns.

Suggested Citation

  • Price, T. Jeffrey & Wetzstein, Michael E., 1999. "Irreversible Investment Decisions In Perennial Crops With Yield And Price Uncertainty," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 24(01), pages 1-13, July.
    • Handle: RePEc:ags:jlaare:30874
    DOI: 10.22004/ag.econ.30874
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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. T. Jeffrey Price & Michael E. Wetzstein & Mark W. Rieger, 1997. "Reducing Yield Variation in Peach Orchards by Geographic Scattering," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1119-1126.
    7. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474, December.
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