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Investment under Uncertainty and Dynamic Adjustment in the Finnish Pork Industry

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  • Kyösti S. Pietola
  • Robert J. Myers

Abstract

A stochastic dual model of investment under uncertainty is used to investigate structural adjustment in the Finnish hog industry. Value function restrictions are found to be comparable to those in existing dual models assuming deterministic state variables. The model also allows for an asymmetry in investment response during capital expansion and contraction phases. Empirical results show that investments respond negatively to increased uncertainty and that labor adjusts more slowly during contraction phases than during expansions. Results on economies of size, uncertainty effects, and adjustment rigidities have important implications for hog industry response to Finland's entry into the EU. Copyright 2000, Oxford University Press.

Suggested Citation

  • Kyösti S. Pietola & Robert J. Myers, 2000. "Investment under Uncertainty and Dynamic Adjustment in the Finnish Pork Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(4), pages 956-967.
    • Handle: RePEc:oup:ajagec:v:82:y:2000:i:4:p:956-967
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    File URL: http://hdl.handle.net/10.1111/0002-9092.00094
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    1. Yir-Hueih Luh & Spiro E. Stefanou, 1996. "Estimating Dynamic Dual Models under Nonstatic Expectations," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(4), pages 991-1003.
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