HYSTERESIS AND ASSET FIXITY UNDER UNCERTAINTY

Shih-Hsun Hsu and Ching-Cheng Chang

No 271275, 1991 Annual Meeting, August 4-7, Manhattan, Kansas from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: The fixed asset theory, when viewed as an investment/disinvestment theory, implies a simple two-parameter control-limit decision rule. The theory is extended to incorporate the stochastic nature of farm revenue. The results show that ongoing uncertainty leads to a widening of the range of inaction because there is a positive value of waiting. The effects of sunk costs, or the divergence of acquisition costs from salvage values, on the degree of investment/ disinvestment irreversibility become more pronounced when uncertainty is present.

Keywords: Agricultural and Food Policy; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 16
Date: 1991-08-04
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea91:271275

DOI: 10.22004/ag.econ.271275

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