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Entry and Exit of firms explained by trigger points: Dutch glasshouse horticulture

Natalia V. Goncharova and Arie J. Oskam

No 44451, 2008 International Congress, August 26-29, 2008, Ghent, Belgium from European Association of Agricultural Economists

Abstract: The entry and exit decisions, considered as investment decisions, are investigated in the paper. Taking into account the heterogeneity of entry and exit, the analysis is based on two types of entry-exit: real (related to the establishment or closing of a firm), or entry-exit in a new sector (indicating the diversification or changing specialisation). The theoretical model is based on Marshallian trigger points with Real Option trigger points as an alternative. The estimation exploited the negative binomial model to investigate the role of trigger points (thresholds) on the observed number of entry or exit firms in Dutch glasshouse horticulture over 25 years. Firms should overcome different thresholds depending on types of entry and exit. Marshallian trigger points function as good as the ones based on Real Option theory. The estimation of the model, which takes into account expected output prices, uncertainty and the interest rate, however, provides the best explanation of entry and exit. That model can be considered of a flexible variant of Real Option theory. The model provides plausible elasticities of entry and exit, either real or in changing specialisation.

Keywords: Crop Production/Industries; Industrial Organization (search for similar items in EconPapers)
Pages: 19
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:ags:eaae08:44451

DOI: 10.22004/ag.econ.44451

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