publication . Preprint . 2004

EFFECT OF REVENUE INSURANCE ON ENTRY AND EXIT DECISIONS IN TABLE GRAPE PRODUCTION: A REAL OPTION APPROACH

Seo, Sangtaek; Salin, Victoria; Mitchell, Paul D.; Leatham, David J.;
Open Access
  • Published: 01 Jan 2004
Abstract
This study determines the entry and exit thresholds of table grape farming with irreversible investment under uncertainty. Real option approach is adopted to consider the investment and management flexibility. Also revenue insurance is introduced to consider the effect of the risk management programs on the entry and exit thresholds. Results show that revenue insurance increases the entry and exit thresholds by 1% and 4%, respectively, thus discouraging new investment and current farming, as long as the revenue guarantee is less than the exit threshold. Revenue insurance increases the entry threshold by 3% and decreases the exit threshold by 13% as long as the r...
Subjects
free text keywords: Risk and Uncertainty,
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