Appraisal of agroforestry investment under uncertainty: a South Australian case study
1993
Kirby, M.C. | Sinden, J.A. (New England Univ., Armidale (Australia). Dept. of Agricultural Economics and Business Management) | Kaine, G.W. (New England Univ., Armidale (Australia). Rural Development Centre)
The relative economic merits of agriculture, agroforestry and woodlots depend on the balance of losses in agricultural production and gains from timber production. The merits of these land uses are usually assessed in terms of net present values, and the effects of uncertainty are usually incorporated through sensitivity analyses. Unfortunately, sensitivity analyses often fail to incorporate adequately the probabilities that outcomes will occur, and so can often give misleading results. An alternative procedure to incorporate uncertainty is risk analysis through monte carlo simulation. This procedure is applied to appraise an agroforestry investment in South Australia and to compare it to agriculture and woodlots. The procedure is assessed against the more usual sensitivity analysis, and the economic merits of the three land uses are compared.
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