The analysis of irreversibility, uncertainty and dynamic technical inefficiency on the investment decision in Spanish olive sector
The purpose of this paper is the evaluation of the investment decision under uncertainty and irreversibility allowing for long run inefficiency. The analysis has been applied to a 158 Spanish olive farms using FADN data set. A real option approach has been used to analyse the decision to invest under uncertainty and irreversibility, and a dynamic stochastic frontier model has been developed to estimate the long run technical efficiency and it persistence. The results show that the technical inefficiency persistence parameter is fairly low to unity, which means that small technical inefficiency is transmitted to the next time period. The olive groves investment is irreversible and characterized by uncertainty on price and discount rate. An increase of discount rate means that the farmers take the decision to postpone investment. An increase on price along with a decrease of discount rate leads to the decision to invest with no option value of waiting to invest. The results also suggest that the decision of investment depend on technical inefficiency ant it persistence, the inefficient farmers take time and wait to invest, while at small persistence parameter the decision is to invest.
|Date of creation:||2009|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.iaae-agecon.org/|
More information through EDIRC
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.:
- Seung Ahn & Robin Sickles, 2000. "Estimation of long-run inefficiency levels: a dynamic frontier approach," Econometric Reviews, Taylor & Francis Journals, vol. 19(4), pages 461-492.
- Ahn, Seung C. & Schmidt, Peter, 1995. "Efficient estimation of models for dynamic panel data," Journal of Econometrics, Elsevier, vol. 68(1), pages 5-27, July.
- Cornwell, Christopher & Schmidt, Peter & Sickles, Robin C., 1989.
"Production Frontiers With Cross-Sectinal And Time-Series Variation In Efficiency Levels,"
89-18, C.V. Starr Center for Applied Economics, New York University.
- Cornwell, Christopher & Schmidt, Peter & Sickles, Robin C., 1990. "Production frontiers with cross-sectional and time-series variation in efficiency levels," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 185-200.
- Jeffrey I. Bernstein & M. Ishaq Nadiri, 1982.
"Financing and Investment in Plant and Equipment and Research and Development,"
NBER Working Papers
1017, National Bureau of Economic Research, Inc.
- Bernstein, Jeffrey I. & Nadiri, M. Ishaq, 1982. "Financing and Investment in Plant and Equipment and Research and Development," Working Papers 82-27, C.V. Starr Center for Applied Economics, New York University.
- Wilson, Paul & Hadley, David & Asby, Carol, 2001.
"The influence of management characteristics on the technical efficiency of wheat farmers in eastern England,"
Blackwell, vol. 24(3), pages 329-338, March.
- Wilson, Paul & Hadley, David & Asby, Carol, 2001. "The influence of management characteristics on the technical efficiency of wheat farmers in eastern England," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 24(3), March.
- Ho-chuan Huang, 2004. "Estimation of Technical Inefficiencies with Heterogeneous Technologies," Journal of Productivity Analysis, Springer, vol. 21(3), pages 277-296, May.
- Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
- Efthymios G. Tsionas, 2006. "Inference in dynamic stochastic frontier models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(5), pages 669-676.
- Childs, Robin A. & Milligan, Robert A. & White, Gerald B. & Stiles, Warren C., 1983. "A Dynamic Programming Approach to Apple Orchard Replacement," Research Bulletins 184092, Cornell University, Department of Applied Economics and Management.
- 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), July.
- Hester, Susan M. & Cacho, Oscar, 2003. "Modelling apple orchard systems," Agricultural Systems, Elsevier, vol. 77(2), pages 137-154, August.
When requesting a correction, please mention this item's handle: RePEc:ags:iaae09:51397. 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 references are entirely missing, you can add them using this form.