Extreme Events and Land Use Decisions under Climate Change in Tart Cherry Industry in Michigan
This paper studies a land use switching model as a measure of adaptation to climate change in tart cherry industry in Michigan. In order to capture the effects of extreme events, we employ a real options land conversion model where an underlying stochastic process allows a Poisson-type jump component. We compare land use decisions under the increased frequency and severity of extreme weather events as well as well-known gradual climate change. We find that when decision makers are allowed to optimize dynamically and to learn, gradual changes and extreme events can lead to different likelihoods of adaptation occurring as well as different adaptation incentives even when traditional net present value (NPV) calculations are equal. We suggest that although gradual change imposes higher incentive to switch than the extreme events, the realized action may be dominated by the extreme events, especially extreme magnitude change.
|Date of creation:||2013|
|Date of revision:|
|Contact details of provider:|| Postal: 555 East Wells Street, Suite 1100, Milwaukee, Wisconsin 53202|
Phone: (414) 918-3190
Fax: (414) 276-3349
Web page: http://www.aaea.org
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.:
- Barry K. Goodwin, 2009. "Payment Limitations and Acreage Decisions under Risk Aversion: A Simulation Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(1), pages 19-41.
- Jan Hinrichs & Oliver Musshoff & Martin Odening, 2008. "Economic hysteresis in hog production," Applied Economics, Taylor & Francis Journals, vol. 40(3), pages 333-340.
- Black, J. Roy & Nugent, James & Rothwell, Nikki & Thornsbury, Suzanne & Olynk, Nicole J., 2010. "Michigan Production Costs for Tart Cherries by Production Region," Agricultural Economic Report Series 98205, Michigan State University, Department of Agricultural, Food, and Resource Economics.
- Hennessy, David A., 2012.
"Modeling Stochastic Crop Yield Expectations with a Limiting Beta Distribution,"
Staff General Research Papers
35020, Iowa State University, Department of Economics.
- Hennessy, David A., 2011. "Modeling Stochastic Crop Yield Expectations with a Limiting Beta Distribution," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 36(1), April.
- Turvey, Calum G. & Zhao, Jinhua, 1999. "Parametric And Non-Parametric Crop Yield Distributions And Their Effects On All-Risk Crop Insurance Premiums," Working Papers 34129, University of Guelph, Department of Food, Agricultural and Resource Economics.
- Feng Song & Jinhua Zhao & Scott M. Swinton, 2011.
"Switching to Perennial Energy Crops Under Uncertainty and Costly Reversibility,"
American Journal of Agricultural Economics,
Agricultural and Applied Economics Association, vol. 93(3), pages 764-779.
- Song, Feng & Zhao, Jinhua & Swinton, Scott M., 2009. "Switching to Perennial Energy Crops under Uncertainty and Costly Reversibility," Staff Papers 56195, Michigan State University, Department of Agricultural, Food, and Resource Economics.
- 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.
- Botzen, W.J.W. & Bouwer, L.M. & van den Bergh, J.C.J.M., 2010. "Climate change and hailstorm damage: Empirical evidence and implications for agriculture and insurance," Resource and Energy Economics, Elsevier, vol. 32(3), pages 341-362, August.
- Nicolai V. Kuminoff & Ada Wossink, 2010. "Why Isn't More US Farmland Organic?," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(2), pages 240-258.
- Wittenberg, Eric & Wolf, Christopher A., 2012. "2012 Michigan Land Values and Leasing Rates," Agricultural Economic Report Series 140027, Michigan State University, Department of Agricultural, Food, and Resource Economics.
- Dabin Wang & William G. Tomek, 2007. "Commodity Prices and Unit Root Tests," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(4), pages 873-889.
- Me-Nsope, Nathalie Mongue, 2009. "Tart Cherry Yield and Economic Response to Alternative Planting Densities," Graduate Research Masters Degree Plan B Papers 54502, Michigan State University, Department of Agricultural, Food, and Resource Economics.
- Ernesto Mordecki, 2002. "Optimal stopping and perpetual options for Lévy processes," Finance and Stochastics, Springer, vol. 6(4), pages 473-493.
- S. G. Kou, 2002. "A Jump-Diffusion Model for Option Pricing," Management Science, INFORMS, vol. 48(8), pages 1086-1101, August.
When requesting a correction, please mention this item's handle: RePEc:ags:aaea13:150568. 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.