Vertical Integration or Contract Farming on Biofuel Feedstock Production: A Technology Innovation Perspective
2017
Du, Xiaoxue | Lu, Liang | Zilberman, David
Both the goal of energy independence and the desire to lower greenhouse gasemission have triggered the search for alternate energy sources. For second generation biofuelproduction, a key question is which form of industrial organization should be adopted in orderto stimulate stable feedstock production. Using a two-stage optimal control framework, weanalyze the optimal form of industrial organization should be adopted where technologyinnovation is endogenous and biorefinery faces credit constraint. Our results show that,under certain assumptions, it is optimal to adopt vertical integration in the beginning andmove to contract farming later. Moreover, the tighter credit constraint that a biorefineryfaces, the sooner the biorefinery would adopt contract farming.
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