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Optimal Replacement under Risk

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  • Oscar R. Burt

Abstract

Large investments in capital goods create concern about economic life of specific items of capital such as farm buildings, machinery, and livestock. Many of these assets are subject to involuntary replacement due to random phenomena. This paper develops a model for economic analysis of asset life under conditions of chance failure or loss. Analytical results are derived which imply routine decision rules and provide insight to the economics of replacement.

Suggested Citation

  • Oscar R. Burt, 1965. "Optimal Replacement under Risk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 47(2), pages 324-346.
    • Handle: RePEc:oup:ajagec:v:47:y:1965:i:2:p:324-346.
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    File URL: http://hdl.handle.net/10.2307/1236579
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    Citations

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    Cited by:

    1. Batterham, Robert L. & Fraser, K.I., 1995. "Capital Equipment Replacement Decisions," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 63(01), pages 1-8, April.
    2. Timothy J. Lowe & Paul V. Preckel, 2004. "Decision Technologies for Agribusiness Problems: A Brief Review of Selected Literature and a Call for Research," Manufacturing & Service Operations Management, INFORMS, vol. 6(3), pages 201-208.
    3. Bentley, Ernest & Waters, James R. & Shumway, C. Richard, 1976. "Determining Optimal Replacement Age of Beef Cows in the Presence of Stochastic Elements," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 8(2), pages 13-18, December.
    4. Mathews, Kenneth H., Jr. & Short, Sara D., 2001. "The Beef Cow Replacement Decision," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 19(2), pages 1-21.
    5. Webber, C. A. & Graham, J. D. & MacGregor, R. J., 1988. "A Regional Analysis of Direct Government Assistance Programs in Canada and their Impacts on the Beef and Hogs Sectors," Working Papers 244071, Agriculture and Agri-Food Canada.
    6. Boland, Michael A. & Foster, Kenneth A. & Preckel, Paul V., 1999. "Nutrition and the Economics of Swine Management," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 31(1), pages 83-96, April.
    7. Stutzman, Sarah & Weiland, Brandon & Preckel, Paul & Wetzstein, Michael, 2017. "Optimal replacement policies for an uncertain rejuvenated asset," International Journal of Production Economics, Elsevier, vol. 185(C), pages 21-33.
    8. Van Tassell, Larry W. & Nixon, Clair J., 1989. "A Further Look At The Effect Of Federal Tax Laws On Optimal Machinery Replacement," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 21(2), pages 1-8, December.
    9. Crane, Donald R. Jr. & Spreen, Thomas H., 1979. "A Conceptual Model Of The Stubble Replacement Decision For Florida Sugarcane Growers," 1979 Annual Meeting, July 29-August 1, Pullman, Washington 277828, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    10. Behzadi, Golnar & O’Sullivan, Michael Justin & Olsen, Tava Lennon & Zhang, Abraham, 2018. "Agribusiness supply chain risk management: A review of quantitative decision models," Omega, Elsevier, vol. 79(C), pages 21-42.
    11. Yates, C.M. & Rehman, T., 1998. "A linear programming formulation of the Markovian decision process approach to modelling the dairy replacement problem," Agricultural Systems, Elsevier, vol. 58(2), pages 185-201, October.
    12. Etherington, Dan M., 1977. "A Stochastic Model For The Optimal Replacement Of Rubber Trees," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 21(1), pages 1-19, April.
    13. Gutierrez, Paul H. & Dalsted, Norman L. & Jonk, Yvonne C., 1989. "Selection and Development of the Replacement Asset: The Case of the Replacement Beef Heifer," WAEA/ WFEA Conference Archive (1929-1995) 244997, Western Agricultural Economics Association.
    14. Weiland, Brandon & Sesmero, Juan Pablo & Preckel, Paul & Wetzstein, Michael E., 2017. "Can Wood Pellets Save Coal?," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258250, Agricultural and Applied Economics Association.
    15. Marnie Griffith, 2010. "Culling dairy cows as a response to drought in northern Victoria," Centre of Policy Studies/IMPACT Centre Working Papers g-200, Victoria University, Centre of Policy Studies/IMPACT Centre.
    16. Sinh, L.X. & MacAulay, T. Gordon & Brennan, Donna C., 2003. "A Bio-economic Model of a Shrimp Hatchery in the Mekong River Delta of Vietnam," 2003 Conference (47th), February 12-14, 2003, Fremantle, Australia 58261, Australian Agricultural and Resource Economics Society.
    17. Feuz, Dillion, 1991. "The Optimal Prebreeding Target Weight for Replacement Beef Heifers," WAEA/ WFEA Conference Archive (1929-1995) 321483, Western Agricultural Economics Association.
    18. Niemi, Jarkko K., 2012. "Designing coordination contracts to support efficient flow-scheduling in pork chain," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 125208, Agricultural and Applied Economics Association.
    19. Boyer, Christopher M. & McFarlane, Zach McFarlane & Mulliniks, Travis & Griffith, Andrew P., 2018. "Investment into Developing Heifers: When Does She Become Profitable?," 2018 Annual Meeting, August 5-7, Washington, D.C. 274108, Agricultural and Applied Economics Association.
    20. Botha, P. J. & van Zyl, J., 1992. "Economic Aspects Of The Optimum Replacement Of Seedling Tea By Higher Yielding Clonal Varieties," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 31(2), June.
    21. Johnson, James William, 1985. "Land prices: changes and variability: the effect on Iowa grain farms," ISU General Staff Papers 1985010108000017533, Iowa State University, Department of Economics.
    22. McClelland, John W. & Wetzstein, Michael E. & Noles, Richard K., 1987. "Optimal Replacement Policies for Recyclable Assets," 1987 Annual Meeting, August 2-5, East Lansing, Michigan 270113, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    23. Falconer, Lawrence L. & Long, Charles R. & McGrann, James M., 1996. "A Decision Support Aid For Beef Cattle Investment Using Expert Systems," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 28(1), pages 1-13, July.

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