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An Ex Ante Assessment of Investments in Texas Grapefruit under Uncertainty

Published online by Cambridge University Press:  12 June 2017

Nicole A. Elmer ,
Amy P. Thurow ,
Jason L. Johnson  and
C. Parr Rosson
Nicole A. Elmer
Affiliation:
Department of Agricultural Economics at, Texas A&M University, when this research was conducted. Charles Hall, Ray Prewett, Steve Robinson, Julian Sauls and Bob Smith assisted with data collection. Financial support from the Research Enhancement Program (Texas A&M University's College of Agriculture and Life Sciences) is gratefully acknowledged.
Amy P. Thurow
Affiliation:
Department of Agricultural Economics at, Texas A&M University, when this research was conducted. Charles Hall, Ray Prewett, Steve Robinson, Julian Sauls and Bob Smith assisted with data collection. Financial support from the Research Enhancement Program (Texas A&M University's College of Agriculture and Life Sciences) is gratefully acknowledged.
Jason L. Johnson
Affiliation:
Department of Agricultural Economics at, Texas A&M University, when this research was conducted. Charles Hall, Ray Prewett, Steve Robinson, Julian Sauls and Bob Smith assisted with data collection. Financial support from the Research Enhancement Program (Texas A&M University's College of Agriculture and Life Sciences) is gratefully acknowledged.
C. Parr Rosson
Affiliation:
Department of Agricultural Economics at, Texas A&M University, when this research was conducted. Charles Hall, Ray Prewett, Steve Robinson, Julian Sauls and Bob Smith assisted with data collection. Financial support from the Research Enhancement Program (Texas A&M University's College of Agriculture and Life Sciences) is gratefully acknowledged.
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Abstract

The Dixit-Pindyck model was applied to examine the hypothesis that uncertainty associated with grapefruit production costs and returns is an important determinant of Texas grapefruit growers' investment behavior. Freezes, price variability, and the effects of expanded trade were analyzed as risk factors. An investment decision rule based on a net-present value calculation would approve a 25-year commitment to a 20-acre grapefruit grove, given a 6-percent discount rate. The modified hurdle rate, calculated using an ex ante version of the Dixit-Pindyck model, is 24 percent. The major source of the risk borne by Texas grapefruit investors is from freezes, rather than from expanded trade.

Keywords

citrusex ante analysisDixit-Pindyck modelfreezesinvestmentsimulationTexastrade
Type
Articles
Information
Journal of Agricultural and Applied Economics , Volume 33 , Issue 3 , December 2001 , pp. 391 - 401
Copyright
Copyright © Southern Agricultural Economics Association 2001

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