The Economic Threshold with a Stochastic Pest Population: a Real Option Approach

Jean-Daniel M. Saphores ()

Cahiers de recherche from Université Laval - Département d'économique

Abstract:

Using real options, we formulate an optimal stopping model for applying pest control measures when the density of a pest population fluctuates randomly. This model is applied to the control of a foliar pest of apples (the European Red Mite) via a pesticide, and solved numerically by a boundary-tracking algorithm. We find that the pest density above which the pesticide should be applied increases with the pest density volatility. A sensitivity analysis highlights the importance of several biological parameters. Incorporating pest randomness into simple decision rules may thus help reduce the overall amount of chemicals applied to soils and crops.

Keywords: Uncertainty; Option Value; Real Options; Pest Control (search for similar items in EconPapers)
JEL-codes: C61 D61 D81 Q16 (search for similar items in EconPapers)
Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:laeccr:9901

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