When to Get In and Out of Dairy Farming: A Real Option Analysis

Loren W. Tauer
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Loren W. Tauer: Cornell University

Agricultural and Resource Economics Review, 2006, vol. 35, issue 2, pages 339-347

Abstract: The Dixit entry/exit real option model was applied to the entry/exit decisions of New York dairy farmers. For the cost structure of a 500-cow farm, the entry milk price is $17.52 per hundredweight (cwt) and the exit milk price is $10.84. For the 50-cow farm cost structure, the entry price is higher at $23.71 per cwt, and the exit price is also higher at $13.48. If infinite numbers of representative farms enter and exit at these prices, the price of milk should range between $13.48 and $17.52 per cwt.

Keywords: dairy farming; entry-exit; investment; real options (search for similar items in EconPapers)

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