Hostname: page-component-848d4c4894-5nwft Total loading time: 0 Render date: 2024-05-18T17:02:08.160Z Has data issue: false hasContentIssue false
  • English
  • Français

An Ex Ante Assessment of Investments in Texas Grapefruit under Uncertainty

Published online by Cambridge University Press:  12 June 2017

Nicole A. Elmer ,
Amy P. Thurow ,
Jason L. Johnson  and
C. Parr Rosson
Nicole A. Elmer
Affiliation:
Department of Agricultural Economics at, Texas A&M University, when this research was conducted. Charles Hall, Ray Prewett, Steve Robinson, Julian Sauls and Bob Smith assisted with data collection. Financial support from the Research Enhancement Program (Texas A&M University's College of Agriculture and Life Sciences) is gratefully acknowledged.
Amy P. Thurow
Affiliation:
Department of Agricultural Economics at, Texas A&M University, when this research was conducted. Charles Hall, Ray Prewett, Steve Robinson, Julian Sauls and Bob Smith assisted with data collection. Financial support from the Research Enhancement Program (Texas A&M University's College of Agriculture and Life Sciences) is gratefully acknowledged.
Jason L. Johnson
Affiliation:
Department of Agricultural Economics at, Texas A&M University, when this research was conducted. Charles Hall, Ray Prewett, Steve Robinson, Julian Sauls and Bob Smith assisted with data collection. Financial support from the Research Enhancement Program (Texas A&M University's College of Agriculture and Life Sciences) is gratefully acknowledged.
C. Parr Rosson
Affiliation:
Department of Agricultural Economics at, Texas A&M University, when this research was conducted. Charles Hall, Ray Prewett, Steve Robinson, Julian Sauls and Bob Smith assisted with data collection. Financial support from the Research Enhancement Program (Texas A&M University's College of Agriculture and Life Sciences) is gratefully acknowledged.
Get access

Abstract

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.

Keywords

citrusex ante analysisDixit-Pindyck modelfreezesinvestmentsimulationTexastrade
Type
Articles
Information
Journal of Agricultural and Applied Economics , Volume 33 , Issue 3 , December 2001 , pp. 391 - 401
Copyright
Copyright © Southern Agricultural Economics Association 2001

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Aggie Hotline. College Station, TX: Texas A&M University, University Relations Department. Internet Daily News Briefs Service. 19 June 1998.Google Scholar
Albers, Heidi J. “Modeling ecological constraints on tropical forest management: spatial interdependence, irreversibility, and uncertainty.” Journal of Environmental Economics and Management 30,1(1996): 73–94.CrossRefGoogle Scholar
Batabyal, Amitrajeet A. “The timing of land development: an invariance result.” American Journal of Agricultural Economics 78,4(November, 1996): 1092–1097.CrossRefGoogle Scholar
Chang, C. and Griffin, Ronald. “Water marketing as a reallocative institution in Texas.” Water Resources Research 28(March, 1992): 879–890.CrossRefGoogle Scholar
Conner, J. James, Richard L., Schumann, James K., and Jackson, B. “Environmental and natural resources: trends and implications.” College Station, TX: Texas A&M University, Summit on Environmental and Natural Resource Policy for the Twenty-first Century. November, 1996.Google Scholar
Conrad, Jon M. “On the option value of old-growth forest.” Ecological Economics 22,1(1997): 97–102.CrossRefGoogle Scholar
Cox, John C., Ross, Stephen A., and Rubinstein, Mark. “Option Pricing: A Simplified Approach.” Journal of Financial Economics 7(1979):229–263.CrossRefGoogle Scholar
Dixit, Avinash K. “Investment and hysteresis.” Journal of Economic Perspectives 6,1 (Winter, 1992):107–132.CrossRefGoogle Scholar
Dixit, Avinash K., and Pindyck, Robert S. Investment under uncertainty. Princeton, NJ: Princeton University Press, 1994.CrossRefGoogle Scholar
Dixit, Avinash K., and Pindyck, Robert S. “The options approach to capital investment.” Harvard Business Review 73,3(May/June 1995):105–115.Google Scholar
Elmer, Nicole Audra. “The environmental effects of expanded trade: a firm-level simulation analysis of investment in Texas grapefruit.” M.S. thesis, Texas A&M University, 1997.Google Scholar
Ervin, David E., and Keller, Vivian Noble. “Key questions.” In Agriculture, trade, and the environment: discovering and measuring the critical linkages. Editors Bredahl, Maury E., Ballenger, Nicole, Dunmore, John C., and Roe, Terry L. Boulder, CO: Westview Press, 1996.Google Scholar
Gilliland, Charles E. “Rural land rebounds.” Tierra Grande (Spring, 1997):11–13.Google Scholar
Kalaitzandonakes, , Nicholas, G. and Shonk-wiler, J. Scott. “A state-space approach to perennial crop supply analysis.” American Journal of Agricultural Economics 74,2(May, 1992):343–352.CrossRefGoogle Scholar
McClain, Emily A. “A Monte Carlo simulation model of the world orange juice market.” Ph.D. dissertation, University of Florida, 1989.Google Scholar
Moss, Charles B., Pagano, Amy P., and Boggess, William G. “Ex ante modeling of the effect of irreversibility and uncertainty on citrus investments.” In Risk modeling in agriculture: retrospective and prospective. Proceedings of the annual meeting of the technical committee of the S-232 regional research group, Gulf Shores, Alabama. March, 1994.Google Scholar
Murdock, , Steven, H. and Hoque, N. “Population Growth: Texas Leads Nation.” Tierra Grande (Summer, 1996):22–23.Google Scholar
Nerlove, Marc. “The dynamics of supply: retrospect and prospect.” American Journal of Agricultural Economics 64,5(December, 1979):874–888.CrossRefGoogle Scholar
Piper, S. “Water quality problems and the ability to pay for water supply improvements in the lower Rio Grande area of Texas.” Proceedings of Texas Water ”95: A Component Conference of the First International Conference on Water Resources Engineering. San Antonio, Texas, 1995.Google Scholar
Purvis, , Amy, , Boggess, William G., Moss, Charles B., and Holt, John. “Technology adoption decisions under irreversibility and uncertainty: An Ex Ante Approach.” American Journal of Agricultural Economics 77,3 (August, 1995):243–250.CrossRefGoogle Scholar
Salin, Victoria. Real option valuation when risks are cointegrated. Ph.D. dissertation. Purdue University, 1997.Google Scholar
Sauls, Julian W. “Texas citrus: water management.” College Station, TX: Texas Agricultural Extension Service, Leaflet #2307, 1988.Google Scholar
Seale, James L. Jr. and Fairchild, Gary F. “Trade agreements, competition, and the environment: Gridlock at the crossroads.” Journal of Agricultural and Applied Economics 26,1 (July, 1994):97–107.CrossRefGoogle Scholar
Stiegen, Kyle W., and Hertel, Thomas W. “Optimal capacity in the anhydrous ammonia industry.” American Journal of Agricultural Economics 79,4 (November, 1997):1096–1107.CrossRefGoogle Scholar
Summers, Lawrence H. “Investment incentives and discounting of depreciation allowances.” In The effects of taxation on capital accumulation, editor, Feldstein, Martin. Chicago: University of Chicago Press, 1987.Google Scholar
Taylor, Merritt. “Texas Citrus: Grapefruit Orchard Establishment Costs—Years 1 to 3.” College Station, TX: Texas Agricultural Extension Service, Leaflet #2327, 1994a.Google Scholar
Taylor, Merritt. “Texas Citrus: Young Grapefruit Orchard Production Costs and Returns—Years 4 to 7.” College Station, TX: Texas Agricultural Extension Service, Leaflet #2321, 1994b.Google Scholar
Taylor, Merritt. “Texas Citrus: Mature Grapefruit Orchard Production Costs and Returns—Years 8 to 10.” College Station, TX: Texas Agricultural Extension Service, Leaflet #2322, 1994c.Google Scholar
U.S. Office of Technology Assessment. Agriculture, trade, and environment: achieving complementary policies, Washington, DC: U.S. Government Printing Office, OTA-ENV-617, May 1995.Google Scholar
U.S. Environmental Protection Agency (US EPA). “US/Mexico Border XXI Program: summary of domestic meetings.” Washington, DC: U.S. Government Printing Office, Report Number 160-R-96-001, June 1996.Google Scholar
Zanzig, Blair R., Moss, Charles B., and Schmitz, Andrew. “The S-shaped yield curve of Florida valencias.” Gainesville, FL: University of Florida, Food and Resource Economics Department, Staff Paper # 98-8, June, 1998.Google Scholar