Investment planning under uncertainty and flexibility: the case of a purchasable sales contract

Oliver Musshoff and Norbert Hirschauer

Australian Journal of Agricultural and Resource Economics, 2008, vol. 52, issue 01, 20

Abstract: Investment decisions are not only characterised by irreversibility and uncertainty but also by flexibility with regard to the timing of the investment. This paper describes how stochastic simulation can be successfully integrated into a backward recursive programming approach in the context of flexible investment planning. We apply this hybrid approach to a marketing question from primary production which can be viewed as an investment problem: should grain farmers purchase sales contracts which guarantee fixed product prices over the next 10 years? The model results support the conclusion from dynamic investment theory that it is essential to take simultaneously account of uncertainty and flexibility.

Keywords: Agricultural Finance; Risk and Uncertainty (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (5)

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Journal Article: Investment planning under uncertainty and flexibility: the case of a purchasable sales contract * (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aareaj:117741

DOI: 10.22004/ag.econ.117741

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