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    'Staff publications' is the digital repository of Wageningen University & Research

    'Staff publications' contains references to publications authored by Wageningen University staff from 1976 onward.

    Publications authored by the staff of the Research Institutes are available from 1995 onwards.

    Full text documents are added when available. The database is updated daily and currently holds about 240,000 items, of which 72,000 in open access.

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Record number 501693
Title The analysis of irreversibility, uncertainty and dynamic technical inefficiency on the investment decision in the Spanish olive sector
Author(s) Lambarraa, Fatima; Stefanou, Spiro; Gil, José M.
Source European Review of Agricultural Economics 43 (2016)1. - ISSN 0165-1587 - p. 59 - 77.
DOI https://doi.org/10.1093/erae/jbv006
Department(s) Business Economics
WASS
Publication type Refereed Article in a scientific journal
Publication year 2016
Keyword(s) dynamic efficiency - investment - real option - Spanish olive sector
Abstract

This study addresses irreversible investment decision-making in the context of uncertainty when allowing for inefficiency to be transmitted over time. Both irreversibility and persistence in technical inefficiency can lead to sluggish adjustment of quasi-fixed factors of production. The context of our application is the Spanish olive sector using farm-level data. We first estimate a dynamic stochastic frontier model to determine the long-run technical efficiency and its persistence. Then we address the decision to invest under uncertainty and irreversibility using a real option approach and include the technical inefficiency and its persistence in the simulation model to evaluate their impact in the investment decision. Technical efficiency in the dynamic model is 72.7 per cent, which is 5.5 per cent lower than the static framework suggests. We find that olive grove investment is irreversible. However, the level of persistence in technical inefficiency is fairly low, suggesting that efforts to mitigate price uncertainty can improve production returns to the Spanish olive sector.

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