Investment Under Uncertainty and Dynamic Adjustment in the Finnish Pork Industry

A stochastic dual model of investment under uncertainty is used to investigate structural adjustment in the Finnish hog industry. Value function restrictions are found to be comparable to those in existing dual models assuming deterministic state variables. The model also allows for an asymmetry in investment response during capital expansion and contraction phases. Empirical results show that investments respond negatively to increased uncertainty and that labor adjusts more slowly during contraction phases than during expansions. Results on economies of size, uncertainty effects, and adjustment rigidities have important implications for hog industry response to Finland's entry into the EU.     

Hog producer income losses under contagious animal disease restrictions

Eradication measures of a contagious animal disease may force farmers to keep ready-to-slaughter animals on the farm. As feeding heavy animals may reduce carcass quality and farmer income, farmers can adjust their feeding policy in order to decrease losses from delayed slaughter. The problem is interesting also from society's point of view because eradication measures can affect a large number of farms when a single farm is infected. A dynamic programming model is developed to study optimal hog feeding strategies when the timing of slaughter is restricted. The model takes into account carcass quality, its effects on timing of slaughter under given prices, and animal density on the farm. The results show that farmers suffer substantial losses due to delayed slaughter, and can minimize the losses by reducing energy feeding. The results give information on designing compensation schemes so that all farmers have economic incentives to implement preferred eradication policy.     

Semi‐parametric Modelling of Investments in Heating Installations: The Case of the Dutch Glasshouse Industry

This paper applies a semi‐parametric approach to estimating a generalised model of investments in heating installations. The results suggest that marginal costs of investments in heating installations increase quickly at small investment levels, whereas the increase slows down at higher investment levels. Therefore, standard parametric adjustment cost models are probably biased such that they underestimate the costs of small investments and overestimate the costs of large investments. Results also show that investments in heating installations are very responsive to changes in energy prices. Therefore, an energy tax may be an effective instrument to encourage investments in new energy‐saving heating installations.