BIODIESEL AS A SUBSTITUTE FOR PETROLEUM DIESEL IN A STOCHASTIC ENVIRONMENT

The objective of the research presented in this paper is the development of a stochastic adoption threshold. The option pricing approach for modeling investment under uncertainty is extended for the case of comparing two stochastic input prices associated with inputs that are perfect substitutes in a production process. Based on this methodology, a threshold decision rule influenced by the drift and volatility of these two input prices is developed. Theoretical results established an empirical link for measuring the tradeoff of a relatively more expensive input (biodiesel) with lower price drift and volatility compared with a lower but more volatile priced input (petroleum diesel).


Issue Date:
2000-08
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/15505
Published in:
Journal of Agricultural and Applied Economics, Volume 32, Number 2
Page range:
373-381
Total Pages:
9




 Record created 2017-04-01, last modified 2017-08-23

Fulltext:
Download fulltext
PDF

Rate this document:

Rate this document:
1
2
3
 
(Not yet reviewed)