Machinery sharing by agribusiness firms: methodology, application, and simulation

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Title: Machinery sharing by agribusiness firms: methodology, application, and simulation
Author: Wolfley, Jared Lynn
Abstract: Machinery investments represent a substantial portion of agribusiness firms ? costs . Because of high machinery costs , variable profit margins , and increasing competition , agribusiness managers continually seek methods to maintain profitability and manage risk . One relatively new method is jointly owning and sharing machinery . Contract design issues to enhance horizontal linkages between firms through machinery sharing are addressed . Specifically , costs and depreciation sharing between two firms entering into a joint machinery ownership contract are examined . Two , two -player models , a Nash equilibrium game theoretical model and an applied two -farm simulation model are used to determine impacts of machinery sharing on firms engaged in machinery sharing . The Nash equilibrium model determines theoretical optimal sharing rules for two generic firms . Using the Nash equilibrium model as the basis , the two -farm simulation model provides more specific insights into joint harvest machinery sharing . Both models include contractual components that are uniquely associated with machinery sharing . Contractual components include penalty payment structure for untimely machinery delivery and the percentages of shared costs paid and depreciation claimed paid by each firm . Harvesting windows for each farm and yield reductions associated with untimely machinery delivery are accounted for within the models . Machinery sharing can increase the NPV of after tax cash flows and potentially reduce risk . Sharing will , however , not occur if own marginal transaction costs and /or marginal penalty costs associated with untimely machinery delivery are too large . Further , if the marginal costs of sharing are small relative to own marginal net benefits , sharing will not occur . There are potential tradeoffs between the percentage of shared costs paid and the percentage of shared depreciation claimed depending on each farms ? specific tax deductions . Harvesting window overlaps help determine the viability of machinery sharing . Farms may be better off sharing larger , more efficient machinery than using smaller machinery even when harvest must be delayed . Percentages of shared costs , depreciation , and tax deductions have important tax implications that impact the after tax cash flows and should be considered when negotiating machinery sharing contracts .
URI: http : / /hdl .handle .net /1969 .1 /ETD -TAMU -2314
Date: 2009-05-15

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Machinery sharing by agribusiness firms: methodology, application, and simulation. Available electronically from http : / /hdl .handle .net /1969 .1 /ETD -TAMU -2314 .

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