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The value of price- and quantity-fixing contracts for piglets in Finland

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  • KS Pietola
  • HH Wang

Abstract

This paper estimates the value for price- and quantity-fixing contracts to trade weaned piglets from farrowing farms to finishing farms. These values are estimated using quasi option values, driven up by volatile returns to investment in hog production units. The results suggest that hog producers have an incentive to choose vertically coordinated or integrated production systems when investing in hog production. The value of the price- and quantity-fixing contract was estimated as 7.3 per cent of the investment outlay in farrowing units and 2.7 per cent of the investment outlay in finishing units. The corresponding value of the option to suspend production in finishing units was estimated at 1.7 per cent. Copyright 2000, Oxford University Press.

Suggested Citation

  • KS Pietola & HH Wang, 2000. "The value of price- and quantity-fixing contracts for piglets in Finland," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 27(4), pages 431-447, December.
    • Handle: RePEc:oup:erevae:v:27:y:2000:i:4:p:431-447
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    Cited by:

    1. Gardebroek, Cornelis & Oude Lansink, Alfons G.J.M., 2008. "Dynamic Microeconometric Approaches To Analysing Agricultural Policy," 107th Seminar, January 30-February 1, 2008, Sevilla, Spain 6592, European Association of Agricultural Economists.
    2. Odening, Martin & Mu[ss]hoff, Oliver & Hirschauer, Norbert & Balmann, Alfons, 2007. "Investment under uncertainty--Does competition matter?," Journal of Economic Dynamics and Control, Elsevier, vol. 31(3), pages 994-1014, March.
    3. Xian, Hui & Colson, Gregory & Mei, Bin & Wetzstein, Michael E., 2015. "Co-firing coal with wood pellets for U.S. electricity generation: A real options analysis," Energy Policy, Elsevier, vol. 81(C), pages 106-116.
    4. Odening, Martin & Musshoff, Oliver, 2001. "Reale Optionen und Landwirtschaftliche Betriebslehre – oder: Kann man mit der Optionspreistheorie arbitrieren?," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 50(08), pages 1-10.
    5. Dillen, Koen & Tollens, Eric & Wesseler, Justus, 2010. "The Barroso Proposal Of Nationalizing Gmapproval: A Look At Ht Sugar Beets Under Changed European Sugar Policy," 14th ICABR Conference, June 16-18, 2010, Ravello, Italy 188086, International Consortium on Applied Bioeconomy Research (ICABR).
    6. Balmann, Alfons & Kataria, Karin & Musshoff, Oliver, 2013. "Investment reluctance in supply chains: An agent-based real options approach," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 3(2A), pages 1-10.
    7. Martin Odening & Oliver Mußhoff & Alfons Balmann, 2005. "Investment decisions in hog finishing: an application of the real options approach," Agricultural Economics, International Association of Agricultural Economists, vol. 32(1), pages 47-60, January.
    8. Syster C. Maart-Noelck & Oliver Musshoff, 2013. "Investing Today or Tomorrow? An Experimental Approach to Farmers’ Decision Behaviour," Journal of Agricultural Economics, Wiley Blackwell, vol. 64(2), pages 295-318, June.
    9. Steen, Marie, 2006. "Flower Power at the Dutch Flower Auctions? Application of an Inverse Almost Ideal Demand System," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25441, International Association of Agricultural Economists.

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