IRREVERSIBLE INVESTMENT DECISIONS IN PERENNIAL CROPS WITH YIELD AND PRICE UNCERTAINTY
By: Price, T. Jeffrey; Wetzstein, Michael E.
Price, T. Jeffrey; Wetzstein, Michael E., IRREVERSIBLE INVESTMENT DECISIONS IN PERENNIAL CROPS WITH YIELD AND PRICE UNCERTAINTY, Journal of Agricultural and Resource Economics, Volume 24, Issue 1, July 1999, Pages 173-185
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.