Investment and disinvestment under uncertainty, firm-heterogeneity and tradable output permits

Presenter: Dr. Jan-Henning Feil


Abstract:

This paper develops an agent-based real options model, which is capable of analyzing the investment and disinvestment decisions of heterogeneous competing firms under consideration of tradable output permits. A permit market is integrated into the model in which the firms can trade permits with each other according to their investment or disinvestment behavior for production capacity. The empirical application of the model to the EU dairy sector shows that (changes in) tradable output permit systems can have considerable effects on investments and disinvestments, in particular in markets with a high degree of firm heterogeneity. Amongst others, they can ceteris paribus increase both the willingness to invest and to disinvest especially of the less efficient firms in a market. The results shed new lights on the ongoing public debate about the potential effects of tradable output permit systems on structural change in a sector.


About the author:

Jan-Henning Feil is a Postdoctoral Associate at the Department of Agricultural Economics and Rural Development, Georg-August-University Goettingen, Germany. He is currently working as a principal investigator on a distinguished postdoctoral research grant of the German Science Foundation (DFG), which he acquired in 2014. Within this grant, his research focuses on analyzing structural change in agriculture under competition and uncertainty as well as the use of innovative risk management instruments at farm level. Jan finished his PhD in agricultural economics in 2013 at Goettingen University and studied Business and Economics from 2001 to 2006. Between his master and doctoral studies, he worked for a multi-national consumer goods company in the UK as a procurement manager for four years.