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Uncertainty and Time-to-Build in Bioenergy Crop Production
Economics Presentations, Posters and Proceedings
  • Jerome Dumortier, Indiana University–Purdue University Indianapolis
  • Nathan Kauffman, Federal Reserve Bank of Kansas City
  • Dermot J. Hayes, Iowa State University
Document Type
Conference Proceeding
Publication Date
Conference Title
2015 Agricultural & Applied Economics Association and Western Agricultural Economics Association Annual Meeting
Conference Date
July 26-28, 2015
(37.7749295, -122.41941550000001)
Over the last years, the cellulosic biofuel mandate has not been enforced by the U.S. Environmental Protection Agency. The uncertainty surrounding the enforcement of the mandate in addition to high production and harvest cost contributes to farmers’ hesitation to plant bioenergy crops such as switchgrass and miscanthus. Previous literature has shown that under uncertainty and sunk cost, the investment threshold is further increased because of the value associated from holding the investment option. This warrants the use of a real option model. In this paper, we extend previous literature by applying a real option model to bioenergy crop production in the United States. We show the spatial allocation of switchgrass under biomass price and agricultural return uncertainty. The empirical model identifies the counties in the contiguous United States that are most likely to change to switchgrass production. Our preliminary results indicate a very small share of land in switchgrass production even at high biomass prices.

This is a Selected Paper prepared for presentation at the 2015 Agricultural & Applied Economics Association and Western Agricultural Economics Association Annual Meeting, San Francisco, CA, July 26-28.

Copyright 2015 by Jerome Dumortier, Nathan Kauffman, and Dermot J. Hayes. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies.
Copyright Owner
Jerome Dumortier, Nathan Kauffman, Dermot J. Hayes
File Format
Citation Information
Jerome Dumortier, Nathan Kauffman and Dermot J. Hayes. "Uncertainty and Time-to-Build in Bioenergy Crop Production" San Francisco, CA, United States(2015)
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