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When to Get In and Out of Dairy Farming: A Real Option Analysis

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  • Loren Tauer

Abstract

The Dixit entry/exit real option model, modified to accommodate a milk price support regime, was applied to the entry/exit decisions of New York dairy farmers. Results varied by farm size, but for the 500-cow farm the entry milk price is $19.09 and the exit milk price is $11.66 when farmers were allowed to continuously enter and exit the industry. With no option to ever return to dairy farming, the exit milk price falls to $10.00.

Suggested Citation

  • Loren Tauer, 2005. "When to Get In and Out of Dairy Farming: A Real Option Analysis," Finance 0504018, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:0504018
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    References listed on IDEAS

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