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Optimal Replacement Policies for Rejuvenated Assets

Author

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  • John W. McClelland
  • Micheal E. Wetzstein
  • Richard K. Noles

Abstract

The Faustmann-Samuelson solution for optimal asset rotation is extended to consider both asset rejuvenation and nonconstant prices. A dynamic theoretical model is developed in terms of an optimal control problem with discontinuous control variables, and numerical solution procedures are outlined. The model is applied to layer hen replacement where hen rejuvenation by forced molting is a common industrial practice. Results indicate a sensitivity between the decision to rejuvenate or replace a hen and the egg price cycle, suggesting a mixed rotation strategy.

Suggested Citation

  • John W. McClelland & Micheal E. Wetzstein & Richard K. Noles, 1989. "Optimal Replacement Policies for Rejuvenated Assets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(1), pages 147-157.
    • Handle: RePEc:oup:ajagec:v:71:y:1989:i:1:p:147-157.
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    File URL: http://hdl.handle.net/10.2307/1241783
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    Cited by:

    1. Chen, Gang & Roberts, Matthew C., 2004. "A Dynamic Programming Framework For Using Weather Derivatives To Manage Dairy Profit Risk," 2004 Annual meeting, August 1-4, Denver, CO 20171, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Stutzmas, Sarah & Weiland, Brandon & Preckel, Paul & Wetzstein, Michael, 2016. "Can wood pellets save coal? A real options approach to retrofitting coal plants," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 234940, Agricultural and Applied Economics Association.
    3. McClelland John & Rust John, 2018. "Strategic Timing of Investment over the Business Cycle: Machine Replacement in the US Rental Industry," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 238(3-4), pages 295-351, July.
    4. 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.
    5. 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.

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