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Low Capital Dairy Strategies In Wisconsin: Lessons From A New Approach To Measuring Profitability

Listed author(s):
  • Bradford L. BARHAM


  • Jean-Paul CHAVAS


  • Richard M. KLEMME


This paper proposes a new way to evaluate the role of profitability and risk in the dairy industry, one that incorporates the effects of uncertainty about future returns when investments are irreversible, or sunk. The usefulness of this new approach is demonstrated by the light it sheds on recent attempts by Wisconsin dairy farmers to develop low capital investment strategies and why these initiatives might be crucial to the vitality of the state's industry as a whole. The value of this paper, however, reaches beyond the contribution it offers to comparisons of the viability of alternative investment strategies in dairy, because it is applicable to evaluating profitability and risk in any economic activity, inside or outside of agriculture, where much of the investment is irreversible and uncertainty about future returns is important.

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Paper provided by University of Wisconsin Madison, AAE in its series Staff Papers with number 381.

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Date of creation: Oct 1994
Handle: RePEc:wop:wiaesp:381
Contact details of provider: Postal:
University of Wisconsin, Dept. of Agricultural and Applied Economics, 427 Lorch Street, Madison, WI 53706

Phone: 608-262-8966
Fax: 608-262-4376
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  1. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
  2. Jean-Paul Chavas, 1994. "Production and Investment Decisions Under Sunk Cost and Temporal Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(1), pages 114-127.
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