Does vertical integration reduce investment reluctance in production chains? An agent-based real options approach

Alfons Balmann (), Oliver Musshoff and Karin Larsen

No 59521, Structural Change in Agriculture/Strukturwandel im Agrarsektor (SiAg) Working Papers from Humboldt University Berlin, Department of Agricultural Economics

Abstract: This paper uses an agent-based real options approach to analyze whether stronger vertical integration reduces investment reluctance in pork production. A competitive model in which firms identify optimal investment strategies by using genetic algorithms is developed. Two production systems are compared: a perfectly integrated system and a system in which firms produce either the intermediate product (piglets) or the final product (pork). Simulations show that the spot market solution and the perfectly integrated system lead to a very similar production dynamics even with limited information on production capacities. The results suggest that, from a pure real options perspective, spot markets are not significantly inferior to perfectly integrated supply chains.

Keywords: Agribusiness; Agricultural and Food Policy; Agricultural Finance; Institutional and Behavioral Economics; Productivity Analysis (search for similar items in EconPapers)
Pages: 33
Date: 2009-09
New Economics Papers: this item is included in nep-agr and nep-cmp
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:huscpw:59521

DOI: 10.22004/ag.econ.59521

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