Investment in a methane digester: an application of capital budgeting and real options

J.R. Stokes, R.M. Rajagopalan, S.E. Stefanou

Research output: Contribution to journalArticleAcademicpeer-review

26 Citations (Scopus)

Abstract

Methane digesters may offer dairy producers a way to lower production costs by becoming self-sufficient in electricity production. In addition, the technology may offer additional income through surplus electricity sales and fertilizer and bedding savings as well. However, the typical methane digester is a large and irreversible capital investment characterized by value uncertainty. Analyzed in a real option framework, the theory suggests a potential explanation for why producers in states like Pennsylvania require significant grant funding to adopt the technology, namely, as monetary compensation for the uncertainty in the value of the completed project. The study presents an empirical application
Original languageEnglish
Pages (from-to)664-676
JournalReview of Agricultural Economics
Volume30
Issue number4
DOIs
Publication statusPublished - 2008

Keywords

  • uncertainty
  • technology

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