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Economic Hysteresis in Variety Selection

Published online by Cambridge University Press:  28 April 2015

Timothy J. Richards  and
Gareth P. Green
Timothy J. Richards
Affiliation:
Agribusiness, Morrison School of Agribusiness and Resource Management, Arizona State University, Mesa, AZ
Gareth P. Green
Affiliation:
Department of Economics and Finance, Seattle University, Seattle, WA
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Abstract

Investing in a new perennial crop variety involves an irreversible commitment of capital and generates an uncertain return stream. As a result, the decision to adopt a new variety includes a significant real option value. Waiting for returns to rise above this real option causes a delay in adoption because of economic hysteresis. This study tests for hysteresis in the adoption of wine grape varieties using a sample of district-level data from the state of California. The empirical results show a significant hysteretic effect in wine grape investment, which might be reduced by activities that smooth earnings over time.

Keywords

Californiagrapeshysteresisinvestmentjump diffusionreal optionsvariety adoptionwineQ14Q11D92C34
Type
Articles
Information
Journal of Agricultural and Applied Economics , Volume 35 , Issue 1 , April 2003 , pp. 1 - 14
Copyright
Copyright © Southern Agricultural Economics Association 2003

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