Investments in Kazakhstani Dairy Farming: A Comparison of Classical Investment Theory and the Real Options Approach

This study analyzes the explanatory potential of the real options approach (ROA) regarding the reluctance of Kazakhstani farmers to invest in modern dairy farming. More precisely, it compares the valuation of the ROA with those of the classical investment criterion such as the net present value (NPV). A further objective is to analyze the sensitivity of investment triggers with respect to assumed stochastic processes. To do so, an option-pricing model, which combines the stochastic simulation and the parameterization of investment triggers, is suggested. The results reveal that the investment trigger given by the ROA is considerably higher than the one given by the NPV criterion. This verifies that the ROA has an explanatory potential for the reluctance of farmers to invest in modern dairy farming. In addition, it was found that the option-pricing results indicate a high sensitivity regarding different stochastic processes as well as risk attitudes.

Issue Date:
Publication Type:
Journal Article
DOI and Other Identifiers:
ISSN 0049-8599 (Other)
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Published in:
Quarterly Journal of International Agriculture, 51, 3
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JEL Codes:
D92; Q12; C15
Series Statement:
Quarterly Journal of International Agriculture 51 (2012)

 Record created 2017-04-01, last modified 2019-08-29

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