Journal of Agricultural and Resource Economics
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Dramatic increases in levels and volatility of gasoline prices observed in recent years may create market incentives for adoption of alternative fuels characterized by lower price volatility. This hypothesis is investigated by applying the real-options pricing approach to develop optimal thresholds for switching from conventional gasoline to alternative fuels such as ethanol blends. The main result of the paper is that given the historical price patterns of conventional gasoline and ethanol, switching to ethanol blends is an economically sound decision provided this does not decrease efficiency of the vehicle. Analysis of data subsamples during the periods of higher volatility of gasoline prices (Gulf War and War on Terrorism) provides even stronger support for this result.
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.
Distinctive new provisions of tractor lemon laws which create obligations and provide penalties for defective self-propelled agricultural equipment are contrasted with provisions of automobile lemon laws. Lemon-law obligations involve both producers’ guarantees to provide consumers with a serviceable vehicle and producers’ promise to remedy defects. Due to fewer manufacturer obligations under the tractor lemon laws as opposed to automobile lemon laws, tractors may be expected to have more defects than automobiles. Yet the tractor lemon laws contain fewer penalties in the form of restitution remedies. The inconsistencies of these obligations and penalties suggest tractor laws may be inefficient.
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