AN EX ANTE ASSESSMENT OF INVESTMENTS IN TEXAS GRAPEFRUIT UNDER UNCERTAINTY

The Dixit-Pindyck model was applied to examine the hypothesis that uncertainty associated with grapefruit production costs and returns is an important determinant of Texas grapefruit growers' investment behavior. Freezes, price variability, and the effects of expanded trade were analyzed as risk factors. An investment decision rule based on a net-present value calculation would approve a 25-year commitment to a 20-acre grapefruit grove, given a 6-percent discount rate. The modified hurdle rate, calculated using an ex ante version of the Dixit-Pindyck model, is 24 percent. The major source of the risk borne by Texas grapefruit investors is from freezes, rather than from expanded trade.


Issue Date:
2001-12
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/15451
Published in:
Journal of Agricultural and Applied Economics, Volume 33, Number 3
Page range:
391-401
Total Pages:
11




 Record created 2017-04-01, last modified 2017-08-22

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