|
AgEcon Search >
Michigan State University >
Department of Agricultural, Food, and Resource Economics >
Staff Paper Series >
Please use this identifier to cite or link to this item:
http://purl.umn.edu/56195
|
| Title: | Switching to Perennial Energy Crops under Uncertainty and Costly Reversibility |
| Authors: | Song, Feng
Zhao, Jinhua
Swinton, Scott M. |
| Authors (Email): | Song, Feng (songfeng@msu.edu)
Zhao, Jinhua (jzhao@msu.edu)
Swinton, Scott M. (swintons@msu.edu) |
| Keywords: | real options
irreversibility
sunk costs
land conversion
biofuel
cellulosic biomass
dynamic modeling
stochastic process
biofuel policy |
| JEL Codes: | Q42
Q24 |
| Issue Date: | 2009-12 |
| Series/Report no.: | Dept. of Agricultural, Food, and Resource Economics>Staff Paper Series
2009-14 |
| Abstract: | We study a farmer’s decision to convert traditional crop land into growing dedicated energy crops, taking in account sunk conversion costs, uncertainties in traditional and energy crop returns, and learning. The optimal decision rules differ significantly from the expected net present value rule, which ignores learning, and from real option models that allow only one way conversions into energy crops. These models also predict drastically different patterns of land conversions into and out of energy crops over time. Using corn-soybean rotations and switchgrass as examples, we show that the model predictions are sensitive to assumptions about stochastic processes of the returns. Government policies might have unintended consequences: subsidizing conversion costs into switchgrass reduces proportions of land in switchgrass in the long run. |
| URI: | http://purl.umn.edu/56195 |
| Institution/Association: | Michigan State University>Department of Agricultural, Food, and Resource Economics>Staff Paper Series |
| Total Pages: | 37 |
| Collections: | Staff Paper Series
|
Files in This Item:
| File |
Description |
Size | Format |
|---|
| StaffPaperSong12.2009.pdf | | 315Kb | PDF | View/Open |
|
Recommend this item
All items in AgEcon Search are protected by copyright.
|
