Policy impact analysis in competitive agricultural markets: a real options approach

In consequence of strong changes in general economic conditions, adjustments in the agricultural sector can be expected. To date, however, there are only few policy impact analyses on agricultural investments in a dynamic-stochastic context. The objective of this paper is to develop a real options market model which allows the impact assessment of different political schemes. The model combines genetic algorithms and stochastic simulation. Simulations of the model show that investment subsidies and production ceilings are preferable to price floors because the welfare is less reduced for a given stimulation of the willingness to invest.