Are short rotation coppices an economically interesting form of land use? A real options analysis

Short rotation coppice (SRC) is intensively discussed as being an economical and ecological advantageous alternative to traditional agricultural land use. In various countries, farmers have been encouraged through incentives to cultivate SRC. Nevertheless, they often do not switch from conventional land use to SRC, even if SRC is relatively beneficial according to the net present value (NPV) rule. Therefore, farmers do not follow the classical investment theory. A relatively new theory is the real options approach (ROA). The ROA takes further aspects like irreversibility of the investment costs, flexibility regarding investment timing, and uncertainty of the investment returns into account, which the NPV rule ignores. In the case of SRC, investment (conversion) triggers when a farmer should switch to SRC following the ROA can be higher than those following the NPV rule. As it is often the case in real options applications, decision makers’ possibility to disinvest in general and farmers’ possibility to reconvert, in particular within the useful lifetime of SRC, is not considered. We build a model to calculate the conversion triggers for switching from annual crop production to SRC following the ROA. We consider the opportunity to reconvert the land and evaluate the respective effects on the conversion triggers according to the ROA. Furthermore, we analyze the effect of a former governmental incentive, in terms of an investment subsidy, on the conversion triggers of both theories. Our calculations show that following the ROA, a farmer should change land use to SRC more slowly than when following the NPV rule. Furthermore, neglecting the reconversion possibility would cause considerable bias amongst the results. The consideration of investment subsidies diminishes the conversion triggers of both theories. We conclude that the ROA can at least partially explain farmers’ inertia of converting to SRC.     

供水企业投资风险分析与控制

针对供水企业投资存在着实际销售水量、预期水价实现程度以及坏账损失程度的不确定性，提出对投资风险因素的预测和选择合理的风险处理手段，供水企业投资风险的转移，实施风险共担和风险内部化策略等。把供水企业投资的风险降低到最低程度，以保证项目投资收益的最大化。即销售水量盈亏平衡计算。     

Optimal conservation policy under imperfect intergenerational altruism

In this paper we study the optimal conversion policy set by a society composed of a sequence of non-overlapping imperfectly altruistic generations. We show that society can be equivalently viewed as a sequence of hyperbolic discounting agents. Under uncertainty about future pay-offs we determine, as solution to an intergenerational non-cooperative dynamic game, the optimal timing of irreversible conversion. We show that under both naive and sophisticated beliefs about future time-inconsistency, the option value attached to the conversion decision is eroded and earlier conversion occurs. This determines a drastic bias toward the current generation gratification, which affects the intergenerational allocation of benefits and costs from deforestation.     

Investment decision-making under economic policy uncertainty

It is widely established that economic policy uncertainty (EPU) affects investment decisions and performance, yet research in this area has overlooked the direct property investment market. This article seeks to rectify this and proposes a multistage multilevel analytical framework to offer new insights and a richness of findings. Using a news-based measure of EPU in the United Kingdom, and controlling for economic conditions, a national-level analysis reveals some evidence of Granger-Causality between EPU and total returns, indicating that pricing is responsive to uncertainty. These findings suggest that EPU is an important risk factor for direct property investments, with pricing implications. Differences in data and performance measure are important, however, with income returns unresponsive. A micro-level investigation begins to reveal some of the asset-pricing decisions underpinning the national results, indicating investors’ concerns for income streams are consistently high, regardless of varying EPU. Pricing can also cause changes in EPU, such as in the retail and industrial markets (increasingly linked through logistics) reflecting sector-specific stakeholder groups and newsworthy issues. This evidence highlights how important it is for policy-makers to understand the complex and bi-directional relationship, that indecision can undermine investment confidence and cause investment market volatility, in turn raising EPU.     

Investment in site-specific crop management under uncertainty: implications for nitrogen pollution control and environmental policy

This paper applies an option‐pricing model to analyze the impact of uncertainty about output prices and expectations of declining fixed costs on the optimal timing of investment in site‐specific crop management (SSCM). It also analyzes the extent to which the level of spatial variability in soil conditions can mitigate the value of waiting to invest in SSCM and influence the optimal timing of adoption and create a preference for custom hiring rather than owner purchase of equipment. Numerical simulations show that while the net present value (NPV) rule predicts that immediate adoption is profitable under most of the soil conditions considered here, recognition of the option value of investment indicates that it is preferable to delay investment in SSCM for at least 3 years unless average soil quality is high and the variability in soil quality and fertility is high. The use of the option value approach reveals that the value of waiting to invest in SSCM raises the cost‐share subsidy rates required to induce immediate adoption above the levels indicated by the NPV rule.     

Evaluating Agricultural Energy Policies Under Uncertainty: The Case of Electricity in South India

Farmers' attitude towards risk associated with the availability of energy inputs will influence their investment behavior and demand for energy inputs. In order to analyze policies that reduce the risk in energy availability, some modifications in methods are required. This study, using a mean-variance framework, demonstrates how cross-sectional data and time-series data on crop yields and prices can be used to analyze agricultural energy policies under uncertainty in a developing country context. It is argued that the farmers risk attitudes, their crop allocation behavior, changes in the demand for energy inputs and the stochastic relationship between various forms of energy inputs can be explained by the various energy constraints faced by them. Furthermore, using the same methods the impact of policies which affect these constraints, can be analyzed.     

Estimating the opportunity costs of reducing carbon dioxide emissions via avoided deforestation,using integrated assessment modelling

Estimates show that, in recent years, deforestation and forest degradation accounted for about 17% of global greenhouse gas emissions. The implementation of REDD (Reducing Emissions from Deforestation and Forest Degradation in Developing Countries) is suggested to provide substantial emission reductions at low costs, although cost estimates show large uncertainty. Cost estimates can differ, as they depend on the approach chosen, for example: giving an economic stimulus to entire countries, taking landowners as actors in a REDD framework, or starting from protecting carbon-rich areas. This last approach was chosen for this analysis. Proper calculation of the economic cost requires an integrated modelling approach involving biophysical impact calculations and their associated economic effects. To date, only a few global modelling studies have applied such an approach. In modelling REDD measures, the actual implementation of REDD can take many forms, with implications for the results. This study assumes that non-Annex I countries will protect carbon-rich areas against deforestation, and therefore will refrain from using these areas as agricultural land. The opportunity costs of reducing deforestation within the framework of REDD were assessed using an integrated economic and land-use modelling approach comprising the global economic LEITAP model and the biophysical IMAGE model. One of the main methodological challenges is the representation of land use and the possibility to convert woodlands land into agricultural land. We endogenised the availability of agricultural land by introducing a flexible land supply curve, and represented the implementation of REDD policies as a reduction in the maximum amount of unmanaged land that potentially would be available for conversion to agriculture, in various regions in the world. In a series of model experiments, carbon-rich areas in non-Annex I countries were protected from deforestation. In each consecutive scenario the protected area was increased, starting off with the most carbon rich lands, worldwide systematically working down to areas with less carbon storage. The associated opportunity costs, expressed in terms of GDP reduction, were calculated with the economic LEITAP model. The resulting net reduction in carbon dioxide emissions from land-use change was calculated with the IMAGE model. From the sequence of experiments, marginal cost curves were constructed, relating carbon dioxide emission reductions to the opportunity costs. The results showed that globally a maximum of around 2.5 Gt carbon dioxide emissions could be avoided, annually. However, regional differences in opportunity costs are large and were found to range from about 0 to 3.2 USD per tonne carbon dioxide in Africa, 2 to 9 USD in South America and Central America, and 20 to 60 USD in Southeast Asia. These results are comparable to other studies that have calculated these costs, in terms of both opportunity costs and the regional distribution of emissions reduction.     

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

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.     

Assessing cost‐effectiveness when environmental benefits are bundled: agricultural water management in Great Barrier Reef catchments

Using economic analysis to prioritise improvements in environmental conditions is particularly difficult when multiple benefits are involved. This includes ‘bundling’ issues in agricultural pollution management, where a change in management action or farming systems generates multiple improvements, such as reductions in more than one pollutant. In this study, we conceptualise and compare two different approaches to analysing cost‐effectiveness when varying bundles of benefits are generated for a single project investment. Each approach requires data to be transformed in some way to allow the analysis to proceed. The index approach requires the transformation on the benefits side so that the effects of multiple pollutant changes can be combined into a measure for each project which can then be compared to costs. By comparison, the disaggregation approach requires the transformation on the costs side where costs for each project have to be apportioned across the different pollutants involved. The paper provides novel insights with an application to agricultural water quality improvements into the Great Barrier Reef in Australia, demonstrating that while both approaches are effective in prioritising projects by cost‐effectiveness, the disaggregation approach provides more insightful results and values that may be relevant for use as upper value guidelines in future project selection.     

Why Isn’t More US Farmland Organic?

We develop a theoretical model to assess the dollar compensation required to induce conventional growers to convert to organic. The model incorporates the uncertainty in producers’ expectations about future returns and about the impact of policy changes on these expectations in particular. We demonstrate that a new policy which favours organic can have opposing effects on the rate of conversion. An increase in relative returns to organic today will increase conversion rates. However, if the future of the policy programme is uncertain, its introduction can increase the value of waiting to switch, which will decrease conversion rates. We then develop an empirical switching regression model that enables direct estimation of the value associated with being able to postpone the conversion decision until some of the uncertainty is resolved. The model is applied to data on organic and conventional soybeans before and after major changes in US farm policy toward organic growers. The results suggest that sunk costs associated with conversion to organic coupled with uncertainty about future returns can help to explain why there is so little organic farmland in the USA.     

INVESTMENT IN PRACTICE: WITH SPECIAL REFERENCE TO GRANT-AIDED PRODUCTION OF CROPS UNDER GLASS

A pilot study of investment was made on twenty glasshouse-crop holdings in Kent on which action had been taken under the Horticulture Improvement Scheme. Attention was given to behavioural aspects as well as to financial results, in the expectation that large discrete investments would provide knowledge of investment practice. Most growers in the sample were found not to make a prior evaluation of new investment or to be concerned with its economic efficiency. They paid more attention to technical matters and their own relative eficiency (their comparative standing within the industry). All growers in a financial sub-sample of nine increased their annual revenue by investment, but the proportionate aggregate increase was very little greater than that in the aggregate value of fixed assets created. In the latest year of the post-investment period, the average return per invested-half this investment being two to three years old-was shown by accounts to be less than 10 per cent. The economic test of rate of return on added capital is shown to be impracticable. It is postulated that major investments may not provide forecast cash flows as quickly or as fully as frequently anticipated. Past forecasts must often have been made without empirical knowledge of post-investment situations.     

Local economic structure,regional competition and the formation of industrial land price in China: Combining evidence from process tracing with quantitative results

The price of industrial land in China has been found distorted and remarkably low. However, it is overlooked that industrial land price is relatively high in some regions. This local variation cannot be explained by classical theories on land price that focus on local economic level, population density, and location factors. We propose a theoretical framework incorporating local economic structure and governments’ behavior in regional competition, to interpret the formation of industrial land price in China. We first model local firms as foot-tight ones, whose relocation costs are enormous, and outside firms as foot-loose ones, whose relocation costs are negligible. Then we divide local governments as outside-capital-dependent governments (OCDGs) and non-outside-capital-dependent governments (NOCDGs) according to the role of outside capital in local economic structure. In such a setting, OCDGs are supposed to aggressively pursue outside firms and use industrial land as a critical endowment to engage in race-to-bottom competition, making the price extremely low. On the contrary, the optimal strategy for NOCDGs, who lack strong incentives in attracting outside investment, is to stay aside and let potential land users compete to determine the land price, resulting in a higher land price. Evidence from quantitative results and comparative case studies with process tracing based on Suzhou and Wenzhou together prove the validity of this theory. This paper advances the conventional understanding of industrial land price and concludes with implications on industrial land policies and sustainable development.     

基于模糊经济计算的自来水厂PPP项目投资决策研究

水是城市生活的重要资源,会对居民的生活产生一定影响。城市自来水厂具有一定的公益性质,其经济利益具有一定的限制,再加上部分城市存在不同程度的财政困难,使得自来水厂存在资金短缺的现象,无法满足正常运营需要。因此,为更好地适应市场经济发展,促进自来水厂的长期稳定,需要依靠资本的投资。在建设及运营期间,自来水厂项目具有诸多不确定性,利用传统的投资决策模型无法充分考虑项目的不确定性,可能会直接影响投资决策的可靠性和科学性。在工程经济模糊计算的基础上,构建基于模糊经济计算的自来水厂投资决策模型,以研究自来水厂PPP项目投资决策。通过实例计算可知,模糊工程经济方法具有处理此类不确定性问题的适用性和有效性,能为投资者提供项目收益的多种可能性,帮助投资者降低投资风险。     

Investing in Perennial Pasture Improvement: A Real Options Analysis

In investment analysis, uncertainty and irreversibility can undermine net present value (NPV) as a decision rule since the option to delay investment may have value. We apply the real option theory of investment to the pasture investment decision facing livestock producers in southwest Western Australia. In 2006, livestock producers thinned their herds as pasture availability dwindled due to extreme drought conditions. This left producers with a unique opportunity to either establish new perennial pastures for their cattle or utilize volunteer annual pasture and invest in more sheep breeders. In either case, large and irreversible investments fraught with multiple sources of uncertainty implies that one can gain useful insights by casting the investment problem in a real option context. The results suggest that required rates of return for each investment alternative are about 1% to 1.5% higher than standard NPV would suggest with sheep production having the lower required rate of return.     

The Calculation of returns to research in distorted markets: Comment

In a recent article, Oehmke reported that a high internal rate of return for investment in research when the interaction between research and price policy costs was disregarded could become very low or even negative when the effects of research on the costs of price policy were considered. In this paper, the social returns from research in the presence of the price policies considered by Oehmke are reexamined using a simple geometric approach. The analysis suggests that an output subsidy in a small importing economy, an output subsidy in a closed economy, and a target price in a large exporting economy will on Oehmke's assumptions - cause only small reductions in the internal rate of return from investment in research. This implies that the apparent underinvestment by governments in agricultural research cannot be explained away by a large upward bias, known to governments, in measured rates of return due to failure to account for interactions between research and the costs of price policy measures.     

现阶段农地非农化配置方式效率损失及农地过度性损失

研究目的:计算并比较现阶段全国以及长江三角洲、珠江三角洲、环渤海和成渝四大经济带农地非农化配置方式的效率损失以及农地非农化的过度性损失,以期对这些地区经济可持续发展与土地可持续利用之间关系的协调提供帮助。研究方法:通过边界生产函数模型,运用大陆31个省市的1989-1996年和1999-2002年共计12年的数据计算了农地非农化市场配置低效产生的效率损失和农地非农化过度性的损失。研究结果:虽然现阶段农地非农化市场配置效率损失在逐渐减少,但中国1989-1996年和1999-2002年阶段共计过度性农地非农化184234hm 2,占这两阶段农地非农化总数量的11.2%,其中长江三角洲和珠江三角洲地区的过度性损失较其他地区更为严重。研究结论:提高农地非农化市场配置程度是促进现阶段各地区经济可持续发展的必要条件,近期内应把重点放在长江三角洲和珠江三角洲地区的土地市场建设上。     

A model of entry–exit decisions and capacity choice under demand uncertainty

Many investment decisions of agribusiness firms, such as when to invest in an emerging market or whether to expand the capacity of the firm, involve irreversible investment and uncertainty about demand, cost or competition. This paper uses an option‐value model to examine the factors affecting an agribusiness firm's decision whether and how much to invest in an emerging market under demand uncertainty. Demand uncertainty and irreversibility of investment make investment less desirable than the net present value (NPV) rule indicates. The inactive firm is more reluctant to enter the market when it takes into account demand uncertainty because it preserves the opportunity of making a better investment later. The active firm is more reluctant to abandon the investment because there is an option value of keeping the operation alive. There is a greater distance between the entry and exit thresholds under the option‐value approach than under the NPV rule due to demand uncertainty. The results have implications for agribusiness decision‐making.     

福建省国有林场营林投资经济效益评价研究

运用净现值法和内部收益率法,用福建省国有林场杉木生产过程中发生所有费用和木材生产过程中发生费用的资料,研究福建省国有林场营林投资经济效益。结果表明:国有林场林业投资有一定的经济效益,但经济效益还是比较低;以6%的资本利率,杉木投资的净现值为178.53元/hm2。林业税费政策调整以后,林业投资收益主要取决于造林抚育的支出水平。     

Assessing Market Efficiency

Abstract

Government regulations through import licensing and “seasonal calendars” entail large transaction costs for traders operating in the fruit and vegetable wholesale market in Oman. Monitoring and enforcing these market regulations increase search costs and reduce market efficiency. The objective of this study is to develop a methodology to categorize and measure transactions costs by analyzing traders perceptions and attitude toward regulatory measures, and other market activities. Results show that importers operating at Al-Mawaleh market face the highest level of transaction costs. The changing nature of import calendar as well as the import license procedure represents significant elements of uncertainty that rise the importers' search and monitoring costs. It is suggested that the conversion of these non-tariff barriers into tariffs along WTO rules would reduce market uncertainty and increase market efficiency.     

海水淡化业发展现状及生产成本动态对比分析

为准确把握海水淡化发展及其生产成本,综述了海水淡化在全球的发展现状,对比分析了多效蒸馏法(MED)和反渗透法(RO)等技术在不同规模、年度的可比价成本组成的差异和变化趋势,通过实际案例,评价采用不同技术下淡化海水成本的主要影响因素及它们对成本的贡献率,分析典型案例在减少成本方面值得借鉴的具体措施和经验。结果表明:随生产规模扩大及技术进步,海水淡化成本逐渐降低,RO和MED在1999—2017年间成本分别降低约29.75%和36.97%;淡化成本中电力等动力费用占比近40%,固定资产投资占比约20%;在10万 m³/d级的海水淡化中,我国RO和MED的淡化成本分别比国外高出约26.85%和22.50%;我国淡化海水成本约为自来水的1.28倍,再生水的1.20倍。在未来发展中,我国可从科学投资运营、技术进步创新、完善费用结构、补齐人才短板、政府引导支持等多方面共同推进,以降低海水淡化成本。