Investment Under Uncertainty and Dynamic Adjustment in the Finnish Pork Industry

Posted: 8 Oct 2001

See all articles by K.S. Pietola

K.S. Pietola

Wageningen UR - Agricultural Economics Research Institute (LEI)

Robert J. Myers

Michigan State University - Department of Agricultural Economics

Abstract

A stochastic dual model of investment under uncertainty is used to investigatestructural 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.

Suggested Citation

Pietola, K.S. and Myers, Robert J., Investment Under Uncertainty and Dynamic Adjustment in the Finnish Pork Industry. Available at SSRN: https://ssrn.com/abstract=246809

K.S. Pietola

Wageningen UR - Agricultural Economics Research Institute (LEI)

Burgemeester Patijnlaan 19
The Hague, 2502 LS
Netherlands

Robert J. Myers (Contact Author)

Michigan State University - Department of Agricultural Economics ( email )

East Lansing, MI 48824
United States
517-432-3649 (Phone)

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