Optimal investment in an automatic milking system: An application of real options

Jeffrey Hyde, Jeffrey R. Stokes, Phoebe D. Engel

Research output: Contribution to journalArticle

14 Scopus citations

Abstract

Automatic milking systems (AMSs) are a relatively new technology characterized by uncertainty and irreversibility. The choice to invest in such a system is analyzed in a real options framework. Alternative financing arrangements, depreciation methods, and other factors are investigated to determine their influence on the optimal investment decision. The results suggest that farm capital structure, loan term, and depreciation method have little impact on the investment decision. The primary determinant in the AMS technology adoption decision appears to be whether the AMS will last longer than the existing parlor.

Original languageEnglish (US)
Pages (from-to)75-92
Number of pages18
JournalAgricultural Finance Review
Volume63
Issue number1
DOIs
StatePublished - May 5 2003

All Science Journal Classification (ASJC) codes

  • Agricultural and Biological Sciences (miscellaneous)
  • Economics, Econometrics and Finance (miscellaneous)

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