Publication
|
Publication
|
This paper examines the investment decisions of a timber producer when the output price follows a continuous-time stochastic process. We find that these decisions take the form of a set of trigger prices. While the optimal entry price exceeds its static counterpart - the long-run average total cost, the optimal exit price is less than its static counterpart - the short-run average variable cost. Further, as market conditions evolve, the producer has other decisions like mothballing or reactivation to consider before abandoning production. Our empirical example illustrates how these decisions may vary even with a moderate degree of price volatility, a small amount of sunk costs, and changes in other parameters. Our work gives better explanations to some important issues in forest investment.
Fiscal Year: fy02 ·
Problem Area: pa98-1 ·
Theme: cctrgnas ·
Source: extra
<== Explain
Citation:
Yin, R. and D. H. Newman. 1999. A timber producer's entry, exit, mothballing, and reactivation decisions under market risk. Journal of Forest Economics 5(2):305-320. Want more? Send an email to dwear@fs.fed.us
.
If you're requesting a reprint be sure your email includes the citation and your complete mailing address.
|
Forest Economics and Policy |
|
USDA Forest Service Southern Research Station |