1,721,305 research outputs found
Growing short rotation coppice on agricultural land in Germany: A Real Options Approach
No full textIn many cases decision-makers apparently do not adapt as fast as expected to changing economic conditions. This is also the case for the conversion of farm land to short rotation coppice. From an economic point of view, short rotation coppice has become more interesting in the last few years. Nevertheless, farm land still is rarely used to grow this quite unknown crop. Several explanatory approaches (e.g., traditionalistic behavior and risk aversion) are currently discussed in order to explain this behavior. A relatively new explanatory approach is the Real Options Approach. The Real Options Approach uses a comprehensive dynamic-stochastic model that combines the uncertainty of investment returns, the sunk costs, and the temporal flexibility of the investment implementation. The quintessence of the Real Options Approach is that-compared to the Classical Investment Theory-the investment triggers will be shifted upwards if investments involve inter-temporal opportunity costs. This paper develops a real options model which allows the determination of triggers on the basis of realistic assumptions. We examined when farmers, who only dispose of sandy soils with little water-storing capacity, should convert set-aside land to short rotation coppice. The results show that farmers should not convert until the present value of the investment returns exceeds the investment costs considerably. Thus, they confirm the empirically observed reluctance in conversion. Furthermore, it turned out that the magnitude of the difference between the Classical Investment Theory and the Real Options Approach depends heavily on the type of stochastic process that underlies the investment returns. (C) 2012 Elsevier Ltd. All rights reserved
Ex-ante Evaluation of Policy Measures: Effects of Reward and Punishment for Fertiliser Reduction in Palm Oil Production
No full textPalm oil production creates negative externalities, e.g. through intensive fertiliser application. Policies to limit externalities need an effective, sustainable and efficient measure We use a business simulation game in a framed field experiment in Indonesia to test ex-ante different incentives for reducing such negative externalities. This setting allows inclusion of adequate contextual features, required for reasonable ex-ante evaluation of policy measures. The different designs of the test incentives (either a reward or punishment) varied in their magnitude and probability of occurrence but with constant effects on expected income. Results show that participants react differently to these incentives, indicating that the design can contribute significantly to effectiveness, sustainability or efficiency. A high reward with a low probability was found to be the most effective and sustainable incentive. Moreover, for the most efficient design, a low and certain reward is indicated
Non-metric data: a note on a neglected problem in DEA studies
No full textData envelopment analysis (DEA) is widely used to compare the empirical performance of public institutions such as law enforcement agencies, judicial authorities or national health care systems. Many DEA analysts, however, ignore the fact that DEA efficiency values are non-metric. They consequently do not hesitate to compute (arithmetic) means. They do not hesitate either to treat DEA values as metric data in econometric analyses. Instead of providing useful insights into the performance of public bodies, the confusion of non-metric data with metric data constitutes a lack of internal validity that may cause serious fallacies. Against this background, we believe that a clear warning against an uncritical processing and interpretation of DEA values is pertinent and should be routinely considered by efficiency analysts as well as referees of efficiency papers
Public preferences for pasture landscapes in Germany—A latent class analysis of a nationwide discrete choice experiment
No full textDas Risikoreduzierungspotenzial von Wetterderivaten im Ackerbau: Einfachindizes versus Mischindizes
No full textWeather derivatives are impaired with a basis risk that reduces the risk reduction potential and possibly hinders the introduction of these risk management instruments in the agricultural sector. A frequently suggested approach to reduce the basis risk is the use of mixed indices composed of several weather variables. The present study compares the risk-reduction potential of a temperature index-based and a precipitation index-based weather derivative to a derivative based on a mixed index including the two weather variables temperature and precipitation. This comparison is based on empirical winter wheat yield data of arable farms in Central Germany as well as on daily weather data of individual weather stations over several years. The hedging effectiveness is maximized using the hedging model by Johnson (1960). The results empirically prove that the improvement of the risk reduction potential of weather derivatives based on a mixed index improves significantly in comparison to single-index derivatives. However, it is more advantageous to use several weather derivatives based on a simple index at the same time than using one derivative based on a mixed index if the weather variables of the mixed index were measured at just one weather station. Hence, providers of weather derivatives would do better by offering different weather derivatives based on a simple index than derivatives that are based on a mixed index. In particular this is worth considering with regard to the fact that weather derivatives based on simple indices will surely attract the interest of other sectors more easily. Furthermore, by showing that farm-individual optimally designed weather indices have a significantly higher risk reduction potential than standardized weather indices, this study provides an important progress for the question about the design of weather derivatives. Hence, providers of weather derivative should better offer different weather derivatives with single index-based, farm-individual, optimally designed indices than a derivative based on a mixed index. The focus of the present study may be relevant for farmers as well as for potential providers of weather derivatives
Do rent adjustment clauses reduce risk for agricultural companies?
No full textDo rent adjustment clauses reduce risk for agricultural companies? Risk management is gaining more and more in importance in agriculture. Besides the classic instruments, new risk management instruments are increasingly being proposed or rediscovered. The latter also include the so-called rent adjustment clauses which on first sight seem to be an unusual risk management instrument. In contrast to conventional instruments, the fixed cost 'rent payment' is in this case intentionally made to fluctuate. We investigate the whole farm risk reduction potential of different types of rent adjustment clauses by means of a historical simulation. The risk reduction potential is measured by the standard deviation and the Value at Risk. Our results show that rent adjustment clauses can contribute to risk management in farms. However, the trade-off between the problem of moral hazard and the basis risk needs to be considered. Our proposal of a weather-index based rent adjustment clause seems to be a "good compromise": If objectively measured weather data are used, the problem of moral hazard is completely eliminated, resulting in a clause that is, comparatively speaking, more cost-effective. At the same time, the risk reduction potential, especially that of precipitation-based clauses, is comparatively high
The Conversion of Farm Land to Short Rotation Coppice - An Application of the Real Options Approach
No full textDecision-makers often do not adapt as fast as it might be ostensibly expected to changed economic conditions This is also the case for the conversion of farm land to short rotation coppice From an economic point of view short rotation coppice has become more interesting in the last few years Nevertheless farm land is rarely converted to this quite unknown crop Several explanatory approaches (e g, traditionalistic behavior and risk aversion) are currently discussed in order to explain this behavior A relatively new explanatory approach is the real options approach The real options approach uses a comprehensive dynamic-stochastic model which combines the uncertainty of investment returns the sunk costs and the temporal flexibility of the investment implementation The quintessence of the real options approach is that - compared to the classical investment theory the investment triggers will be shifted upwards if investments involve intertemporal opportunity costs This paper develops a real options model which allows the determination of triggers on the basis of realistic assumptions (see Table 1) We examined when farmers, who only dispose of sandy soils with little water storing capacity should convert set-aside land to short rotation coppice The results show that farmers should not convert until the present value of the investment returns exceeds the investment costs considerably (see Table 1) Thus they confirm the empirically observed reluctance in conversion Furthermore it turned out that the magnitude of the difference between classical investment theory and the real options approach depends heavily on the type of stochastic process that underlies the investment return
The distribution of the rent–price relationship of agricultural land in Germany
No full textAbstract This paper studies the profitability of investments in agricultural land, using the rent–price ratio (RPR) as a profitability measure. In order to allow for district-level heterogeneity, the full conditional distribution of the RPR is modelled using a generalised additive model for location, shape and scale. The analysis is based on data from Lower Saxony, Germany. The profitability of investments in land varies between and within districts. The variation can be explained by differences in the farming structure, the production programme and economic indicators. Further, differences in the distribution of the RPR between arable land and grassland are found
Oil palm smallholders and the road to certification: Insights from Indonesia
No full texthttp://dx.doi.org/10.13039/501100001659 German Research Foundatio
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